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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-11352
------------------------------
DYNAGEN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3029787
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
840 MEMORIAL DRIVE
CAMBRIDGE, MA 02139
(Address of principal executive offices)
(617) 491-2527
(Issuer's telephone number)
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 July 31, 1999 there were outstanding 57,071,600 shares of common stock,
$.01 par value per share.
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<PAGE>
DYNAGEN, INC.
FORM 10-QSB
QUARTERLY REPORT
JUNE 30, 1999
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 (Deficit) 7
Condensed Consolidated Statements of
Cash Flows 9
Notes to Unaudited Condensed Consolidated
Financial Statements 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities 25
Item 3. Defaults on Senior Securities 26
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURES 28
(*) The financial information at December 31, 1998 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
DYNAGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,398,284 $ 97,045
Accounts receivable, net of
allowance accounts for
doubtful accounts of
$56,240 and $68,133 3,797,320 3,673,472
Rebates 359,220 398,724
Inventory 8,122,235 6,647,079
Notes receivable 111,500 150,000
Prepaid expenses and other
current assets 941,386 201,470
------------ ------------
Total current assets 14,729,945 11,167,790
------------ ------------
Property and equipment, net 2,918,173 1,685,010
------------ ------------
Other assets:
Customer lists, net of accumulated
amortization of $4,897,085 and
$4,205,133 2,664,451 7,636,072
Goodwill, net of accumulated amorti-
tization of $0 and $48,567 -0- 337,652
Patents and trademarks, net of
accumulated amortization of
$10,870 and $0 54,359 65,229
Deferred debt financing costs, net
of accumulated amortization 488,118 277,325
Deposits and other assets 576,091 276,372
------------ ------------
Total other assets 3,783,019 8,592,650
------------ ------------
$ 21,431,137 $ 21,445,450
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Current Liabilities:
Bank overdraft $ 1,267,275 $ 621,313
Notes payable and current
portion of long-term debt 9,788,424 13,162,041
Accounts payable and accrued expenses 3,994,313 3,705,209
Deferred revenue -0- 100,000
Settlement obligation, current portion 64,616 -0-
Acquisition obligation -0- 4,083,000
------------ ------------
Total current liabilities 15,114,628 21,671,563
Warrant put liability 918,033 858,435
Long term debt, less current portion 4,074,923 1,510,813
Settlement obligation, less current portion 475,167 -
------------ ------------
Total liabilities 20,582,751 24,040,811
------------ ------------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 10,000,000
shares authorized, 22,125 and 52,152 shares of
Series A through I outstanding, (liquidation value
$4,912,485 and $5,212,977) 221 521
Common stock, $.01 par value, 75,000,000
shares authorized, 56,038,796 and 37,612,612
shares issued and outstanding 560,388 376,126
Additional paid-in capital 53,940,154 47,181,545
Accumulated deficit (53,652,377) (50,153,553)
------------ ------------
Total stockholders' equity (deficit) 848,386 (2,595,361)
------------ ------------
$ 21,431,137 $ 21,445,450
============ ============
</TABLE>
See accompanying notes to unaudited financial statements.
4
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
-----------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30, June 30,
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Product sales $ 6,580,815 $ 6,429,839
Fees and royalties 225 323
------------ ------------
Total revenues 6,581,040 6,430,162
------------ ------------
Costs and expenses:
Cost of sales 5,565,327 5,509,938
Research and development 322,282 93,670
Selling, general and administrative 2,365,505 2,763,864
Total costs and expenses 8,253,114 8,367,472
------------ ------------
Operating loss (1,672,074) (1,937,310)
------------ ------------
Other income (expense):
Investment and other income, net 447,233 101,604
Interest and financing expense (376,973) (359,553)
------------ ------------
Other income (expense), net 70,260 (257,949)
------------ ------------
Net loss (1,601,814) (2,195,259)
Less returns to Preferred stockholders:
Beneficial conversion feature 803,627 275,042
Dividends paid and accrued 31,992 35,425
------------ ------------
Net loss applicable to common stock $ (2,437,533) $ (2,505,726)
============ ============
Net loss per share-basic $ (0.05) $ (0.13)
============ ============
Weighted average shares outstanding 48,664,848 18,935,650
============ ============
</TABLE>
See accompanying notes to unaudited financial statements.
5
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
-----------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Product sales $ 13,605,612 $ 13,391,422
Fees and royalties 225 365
------------
Total revenues 13,605,837 13,391,787
------------ ------------
Costs and expenses:
Cost of sales 11,181,983 11,068,500
Research and development 498,636 320,287
Selling, general and administrative 4,356,322 5,231,053
Loss on impairment of customer lists 400,000 -0-
------------ ------------
Total costs and expenses 16,436,941 16,619,840
------------ ------------
Operating loss (2,831,104) (3,228,053)
------------ ------------
Other income (expense):
Investment and other income, net 477,984 154,611
Interest and financing expense (1,145,704) (801,151)
------------ ------------
Other income (expense), net (667,720) (646,540)
------------ ------------
Net loss (3,498,824) (3,874,593)
Less returns to Preferred stockholders:
Beneficial conversion feature 995,377 325,042
Dividends paid and accrued 48,115 97,649
------------ ------------
Net loss applicable to common stock $ (4,542,316) $ (4,297,284)
============ ============
Net loss per share-basic $ (0.10) $ (0.33)
============ ============
Weighted average shares outstanding 44,303,126 13,219,985
============ ============
</TABLE>
See accompanying notes to unaudited financial statements.
6
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT)
Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock
Shares Amount Shares Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 63,522 $ 635 4,315,137 $ 43,151
Stock issued for GDI acquisition 12,000 120 - -
Shares issued in private placements 29,250 293 - -
Stock issued for services - - 1,165,175 11,651
Delayed registration penalty - - - -
Conversion of note payable - - 1,798,526 17,986
Conversion of family loans - - 1,560,000 15,600
Conversion of preferred stock (48,760) (488) 13,688,745 136,888
Adjustment due to change in - - - -
ownership of former subsidiary
Comprehensive income: Net loss -- - - -
---------- ---------- ---------- ----------
Balance at June 30, 1998 56,012 $ 560 22,527,583 $ 225,276
========== ========== ========== ==========
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 52,152 $ 521 37,612,612 $ 376,126
Stock options and warrants exercised - - 345,488 3,455
Shares issued in private placement 3,000 30 - -
Conversion of preferred stock (33,027) (330) 10,258,055 102,581
Conversion of debt - - 3,407,641 34,076
Stock issued for bonus - - 125,000 1,250
Stock issued for services - - 2,790,000 27,900
Stock and warrants issued for - - 1,500,000 15,000
Superior settlement
Comprehensive income: Net Loss - - - -
---------- ---------- ---------- ----------
Balance at June 30, 1999 22,125 $ 221 56,038,796 $ 560,388
========== ========== ========== ==========
- ---------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT)
Six Months Ended June 30, 1999 and 1998 (continued)
<TABLE>
<CAPTION>
Additional Accumulated
Paid-In Capital Deficit Total
---------- ---------- ----------
<S> <C> <C> <C>
Balance at December 31, 1997 $39,137,311 $(36,556,469) $ 2,624,628
Stock issued for GDI acquisition 1,199,880 - 1,200,000
Shares issued in private placements 2,776,739 - 2,777,032
Stock issued for services 511,063 - 522,714
Delayed registration penalty (175,000) - (175,000)
Conversion of note payable 412,014 - 430,000
Conversion of family loans 179,400 - 195,000
Conversion of preferred stock (136,400) - -
Adjustment due to change in -
ownership of former subsidiary 468,888 468,888
Comprehensive Income: Net loss -- $ (3,874,593) --
---------- ---------- ----------
Balance at June 30, 1998 $44,373,894 $(40,431,062) $ 4,168,668
========== ========== ==========
Balance at December 31, 1998 $47,181,545 $(50,153,553) $(2,595,361)
Stock options and warrants exercised (3,355) - 100
Shares issued in private placement 2,999,970 - 3,000,000
Conversion of preferred stock (102,251) - -
Conversion of debt 1,016,810 - 1,050,886
Stock issued for bonus 27,500 - 28,750
Stock issued for services 837,935 - 865,835
Stock and warrants issued for
superior settlement 1,982,000 - 1,997,000
Comprehensive income: Net Loss -- (3,498,824) (3,498,824)
---------- ---------- ----------
Balance at June 30, 1999 $53,940,154 $(53,652,377) $ 848,386
========== ========== ==========
</TABLE>
8
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,498,824) $ (3,874,593)
Adjustments to reconcile net loss to net
cash for operating activities:
Depreciation and amortization 938,366 1,684,434
Loss on impairment of customer lists 400,000 --
Stock, stock options and warrants issued for
services 894,585 522,714
(Increase) decrease in operating assets:
Accounts receivable (123,848) 287,062
Rebates 39,504 19,643
Inventory (1,475,156) 2,751,422
Prepaid expenses and other current assets (701,416) 50,604
Deposits and other assets (513,970) (71,092)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 750,322 (2,949,566)
Deferred revenue (100,000) --
------------ ------------
Net cash used for operating activities (3,390,437) (1,579,372)
------------ ------------
Cash flows from investing activities:
Cash paid in Superior settlement (1,500,000) -
Purchase of wholly-owned subsidiary net of
cash received in acquisition - (756,406)
Purchase of property and equipment (1,397,046) (297,242)
Increase in deferred financing and
acquisition costs - (50,000)
------------ ------------
Net cash provided (used) by investing
activities (2,897,046) (1,103,648)
------------ ------------
</TABLE>
9
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from bank loan -- 1,200,000
Repayments of loan payable - bank (299,825) (1,701,287)
Net proceeds from debt placements 4,705,000 500,000
Net proceeds from private stock placements 3,000,000 2,777,032
Proceeds from stock options exercised 100 --
Repayment of debt obligation (345,000) --
Net change in accounts receivable factoring (117,515)
Increase (decrease) in bank overdraft 645,962 (142,616)
Repayment of Superior note payable -- (416,666)
------------ ------------
Net cash provided by financing activities 7,588,722 2,216,463
------------ ------------
Net change in cash and cash equivalents 1,301,239 (466,557)
Cash and cash equivalents at beginning 97,045 697,045
------------ ------------
Cash and cash equivalents at end $ 1,398,284 $ 230,488
============ ============
Supplemental cash flow information:
Interest paid 651,504 498,737
Common stock issued for note payable and accrued interest 1,050,886 450,000
Debt issued for delayed registration penalty 262,500
Schedule of non-cash investing and financing activities:
On March 2, 1998, the Company purchased the net assets of
Generic Distributors Limited Partnership 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 (1,150,000)
Preferred stock issued (1,200,000)
Liabilities assumed (658,274)
------------
Customer lists (exclusive of other acquisition costs of $96,205) $ 633,000
============
</TABLE>
Additional non-cash investing activities as described in Note 2.
See accompanying notes to unaudited financial statements.
10
<PAGE>
DYNAGEN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 Inc.
("GDI"), both of 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, Inc. In 1998, the Company sold the majority of its shares in
BioTrack. Accordingly, BioTrack's financial statements are not included in the
accompanying consolidated financial statements. All significant intercompany
balances and transactions have been eliminated in consolidation.
The results of operations for the periods reported are not necessarily
indicative of those that may be expected for a full year. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
which are necessary for a fair statement of operating results for the interim
periods presented have been made.
The financial information included in this report has been prepared in
conformity with the accounting policies reflected in the financial statements
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998 filed with the Securities and Exchange Commission.
USE OF ESTIMATES
In preparing consolidated financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the balance sheet date and reported amounts of revenues and
expenses during the reporting period. Material estimates that are particularly
susceptible to significant change in the near term relate to the carrying values
of rebates receivable and intangible assets, the valuation of equity instruments
issued by the Company and the amount of obligations due as a result of defaults
on certain debt obligations. Actual results could differ materially from those
estimates.
EARNINGS PER SHARE
Basic earnings per share represents income available to common stock
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance.
11
<PAGE>
For all periods presented, the effect of including shares issuable upon
exercise or conversion of options, warrants and put warrants, would have been
anti-dilutive, and so these shares were excluded in calculating diluted earnings
per share.
The loss applicable to common stockholders has been increased by the
stated dividends on the convertible preferred stock and the amortization of
discounts on convertible preferred stock due to beneficial conversion features.
2. IMPACT OF SUPERIOR SETTLEMENT
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 DynaGen'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 was obligated to issue to the shareholders up to an additional 1,666,667
shares of its common stock on June 18, 1998 if its common stock was not trading
at an average of at least $30.00 per share for 10 consecutive trading days. The
merger agreement provided further that DynaGen would 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. 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 expensed as incurred.
The Superior acquisition has been accounted for as a purchase. The
results of operations of Superior have been included in the Company's
consolidated financial statements since the date of acquisition. The purchase
price allocation was based on the estimated fair values at the date of
acquisition. The Company allocated $13,612,000 of the purchase price to customer
lists, which was being amortized on a straight line basis over five years. The
Company also recorded goodwill of $386,219 which, was being amortized over 15
years.
On July 31, 1998, DynaGen entered into a contingent settlement
agreement to reduce the remaining purchase price to approximately $4,000,000 and
issued the former shareholders of Superior 416,167 shares of common stock in
connection therewith. The shares were valued at $143,700 and charged to expense.
The agreement expired and the Company did not obtain funding sufficient to
settle the outstanding claims.
On December 17, 1998, the former Superior stockholders commenced a
civil action in the Court of Common Pleas, Hamilton County, Ohio. The complaint
filed by the former Superior stockholders alleged that we owed them
approximately $9,000,000, including $4,166,667 in connection with promissory
notes issued in connection with the merger as well as $4,817,660 as an
adjustment to the purchase price. In May 1999, we settled all issues between us
and the former Superior stockholders. The former Superior stockholders agreed to
dismiss their lawsuit in exchange for our:
12
<PAGE>
- paying $1,500,000 in cash;
- issuing 1,500,000 shares of Common Stock valued at
$1,290,000;
- issuing warrants to purchase 1,000,000 shares of Common Stock
at a price of $0.86 per share valued at $ 452,000;
- issuing warrants to purchase 300,000 shares of Common Stock at
a price of $.01 per share valued at $ 255,000; and
- modifying the Commercial Lease Agreement between Superior and
a company controlled by the former Superior stockholders.
The Company recorded a liability of $539,783 for the present value of
the additional rent payable under the lease modification and wrote off all of
its other obligations to the former Superior shareholders, consisting of the
acquisition obligation of $4,083,000, the notes payable obligation of $3,766,667
and accrued interest payable of $395,832. This resulted in an adjustment of
$3,879,669 to the customer list and the goodwill balance was adjusted by
$329,047 due to the reduction in the purchase price of Superior.
3. GENERIC DISTRIBUTORS, INC.
On March 2, 1998, the Company through its subsidiary, Generic
Distributors, Inc. ("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, 10,500 shares of Series E Convertible Preferred
Stock valued at $1,050,000 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 Stock is 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 at the then prevailing market
prices. In connection with the transaction, GDI received $1,200,000 in a
five-year term loan from Fleet Bank. The loan 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 Able, 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.
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 $729,205 of the purchase price to customer lists, based on an
independent appraisal. This amount is being amortized on a straight line basis
over five years. Amortization of customer lists amounted to $72,920 and $48,613
for the six months ended June 30, 1999 and 1998, respectively.
Unaudited pro forma consolidated operating results for the Company,
assuming the acquisition of GDI had been made as of the beginning of fiscal
1998, are as follows:
13
<PAGE>
Six Months Ended
----------------
June 30, 1998
-------------
Revenues $ 14,572,510
Net loss $ (4,288,211)
Net loss per share $ (0.32)
The unaudited pro forma information is not necessarily indicative of
either (i) the actual results of operations that would have occurred had the
purchases been made as of the beginning of the fiscal period presented or (ii)
future results of operations of the combined companies.
4. INVENTORY
Inventory consists of the following:
June 30, 1999 December 31, 1998
------------- -----------------
Raw materials $ 830,584 $ 401,531
Work-in-progress 18,739 66,372
Finished goods 7,272,912 6,179,176
---------- ----------
$8,122,235 $6,647,079
========== ==========
5. DEBT
Notes payable consist of the following:
June 30, December 31,
1999 1998
----------- -----------
Convertible note payable $ - $ 155,000
Bridge loans 1,830,000 725,000
Accounts receivable factoring 67,315 184,830
Machinery & Equipment
Financing 609,333 586,333
7% Convertible Debenture - 250,000
8% Convertible Debenture - 328,500
9% Convertible Debenture 980,000 -
Secured debt - Fleet Bank 1,085,700 1,171,420
Loan Payable -Huntington 4,290,999 4,505,104
Notes payable - Superior Acquisition - 3,766,667
Senior subordinated debt 3,000,000 3,000,000
NJEDA Bond 2,000,000 -
----------- -----------
Total 13,863,347 14,672,854
Less current portion 9,788,424 13,162,041
----------- -----------
Long-term debt $ 4,074,923 $ 1,510,813
=========== ===========
14
<PAGE>
9% CONVERTIBLE DEBENTURE
In the second quarter, the Company received $980,000 by issuing 9%
Convertible Subordinated Debentures. The debentures mature in one year from date
of issuance and carry a quarterly interest payment of 9% per annum. The
principal and interest accrued shall be automatically converted into shares of
Common Stock on the maturity date. Each tranche of $1,000,000 will be converted
into 5% of the shares of Common Stock of DynaGen that are issued and outstanding
on the date of conversion and smaller amounts will be prorated.
NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY BOND
On June 23, 1999, Able Laboratories, Inc., completed the Industrial
Development Revenue Bond offering issued by the New Jersey Economic Development
Authority. The bonds consist of series 1999A $1,700,000, 8% non-taxable and
series 1999B $300,000, 8.25% taxable. Series 1999A bonds will mature in 15 years
and series 1999B bonds will mature in 4 years. The total cost of the bond issue
is estimated at $240,000 and the net proceeds of approximately $1,700,000 are
being used for the acquisition, installation and commissioning of equipment and
machinery.
In connection with these bonds, the Company has entered into various
agreements with the New Jersey Economic Development Authority and the
bondholders, including an escrow agreement pursuant to which the Company has
deposited into escrow amounts intended to cover the Company's obligations under
the bond documents for periods of between two and six months.
6. PREFERRED STOCK
In May and June 1999, the Company received $3,000,000 from the issuance
of 3,000 shares of Series I to various unaffiliated investors. Shares of Series
I are convertible into Common Stock at 80% of the average of the closing bid
price of Common Stock for the three (3) selected, closing bids of past five (5)
trading days immediately preceeding any conversion date. The Company issued
165,652 Common Stock warrants at an exercise price of $0.91 and 34,722 Common
Stock warrants at an exercise price of $0.396 in connection with this financing.
7. SUBSEQUENT EVENTS
On July 19, 1999, the Company received $1,000,000 from the proceeds of
sales of its Series J Preferred Stock. According to the terms of Series J
Preferred Stock, the investor may convert his holdings to Common Stock of the
Company at 80% of the average quoted price for the three days preceding the
conversion notice. The discount rate varies between 80% and 70% as the holding
time increases.
During July 1999, 40 shares of Series I Preferred Stock were converted
into 840,640 shares of Common Stock and 300 shares of Series B Preferred Stock
were converted into 70,336 shares of Common Stock.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The following information should be read in conjunction with the
consolidated financial statements and notes thereto in Part I, Item 1 of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998.
The Company does not provide forecasts of the future financial
performance of the Company. However, from time to time, information provided by
the Company or statements made by its employees may contain "forward-looking"
information that involves risks and uncertainties. In particular, statements
contained in this Form 10-QSB which are not historical facts constitute
forward-looking statements and are made under the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Each forward-looking statement
should be read in conjunction with the consolidated financial statements and
notes thereto in Part I, Item 1, of this Quarterly Report and with the
information contained in Item 2, including, but not limited to, "Certain Factors
That May Affect Future Results" contained herein, together with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998, including, but not limited to, the section therein entitled
"Certain Factors That May Affect Future Results."
RESULTS OF OPERATIONS
DynaGen makes and sells generic drugs for the human health care market.
During 1998 and the first quarter of 1999, we shifted our business focus from
being a development and licensing company to building a company focused on the
manufacture and distribution of generic drug products and specialty
pharmaceuticals. We intend to implement this strategy through internal product
development as well as through the acquisition of businesses, technologies and
products that we believe are undervalued. In August 1996, we acquired the tablet
business of Able Laboratories, Inc. ("Able"), a generic pharmaceutical product
subsidiary of Alpharma, Inc. In addition, we acquired Superior Pharmaceutical
Company ("Superior"), a distributor of generic pharmaceuticals, in June 1997. In
March 1998, we acquired Generic Distributors Limited Partnership through our
wholly-owned subsidiary, Generic Distributors Incorporated ("GDI").
We have financed our operating losses primarily through the proceeds
from public and private stock offerings and debt offerings. We anticipate that
revenues from product sales will not be sufficient to fund our current
operations or produce an operating profit until such time as we can establish
acceptance of our products in their respective markets and expand our
distribution channels. We have incurred losses since inception and expect to
incur additional losses until such time as we can successfully develop,
manufacture, and sell or license our existing and proposed products and
technologies.
Our history of operating losses raises substantial doubt about our
ability to continue operations. If we are unable to secure significant
additional financing or to renegotiate our agreements with our existing
creditors, we may have to file for bankruptcy. Our independent auditors issued
an opinion on our financial statements as of December 31, 1998 and for the year
then ended which included an explanatory paragraph expressing substantial doubt
about our ability to continue as a going concern. See "-- Certain Factors That
May Affect Future Results."
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Three-Month Period Ended June 30, 1999
Revenues for the three-month period ended June 30, 1999 were
$6,581,040, compared to $6,430,162 for the period ended June 30, 1998. The
increase of $150,878 is primarily the result of increased product sales by
Superior Pharmaceuticals.
Cost of product sales was $5,565,327, or 85% of product sales for the
three-month period ended June 30, 1999, compared to $5,509,938, or 86% of
product sales for the period ending June 30, 1998. The Company's gross profit
margin was approximately 15% due to the smaller margins of the distribution
business.
Research and development expenses for the three-month period ended June
30, 1999 were $322,282, compared to $93,670 for the three-month period ended
June 30, 1998. All of these expenses relate to research which is currently being
conducted at Able Laboratories to identify and develop generic drug candidates
for future manufacturing and sales.
Selling, general and administrative expenses for the three-month period
ended June 30, 1999 were $2,365,505 compared to $2,763,864 for the three-month
period ended June 30, 1998. The $398,359 decrease is primarily due to the cost
cutbacks and reduction of staff at our headquarters in Cambridge.
Investment and other income was $447,233 for the three months ended
June 30, 1999, compared to $101,604 for the three-month period ended June 30,
1998. Other income during 1999 includes $341,000 of income recorded from
forgiveness of old payables. Interest and financing expenses of $376,973 for the
three-month period ended June 30, 1999, compared to $359,553 for the three-month
period ended June 30, 1998, relate primarily to private placements of debt. We
issued several warrants in connection with debt placements, the values of which
are included in our financing costs.
Six-Month Period Ended June 30, 1999
Revenues for the six-month period ended June 30, 1999 were $13,605,837,
compared to $13,391,787 for the period ended June 30, 1998. The increase of
$214,050 is primarily the result of increased product sales by Superior
Pharmaceuticals. The GDI acquisition, completed on March 1, 1998, also
contributed to the increase in product sales. Results for the first six months
of 1998 include only four months of sales for GDI.
Cost of product sales was $11,181,983, or 82% of product sales for the
six-month period ended June 30, 1999, compared to $11,068,500, or 83% of product
sales for the period end of June 30, 1998. The Company has maintained a gross
profit margin of 18% and 17%, respectively, due to the smaller margins of the
distribution business.
Research and development expenses for the six-month period ended June
30, 1999 were $498,636, compared to $320,287 for the six-month period ended June
30, 1998. All of these expenses relate to research conducted at Able
Laboratories to identify and develop generic drug candidates for future
manufacturing and sales.
Selling, general and administrative expenses for the six-month period
ended June 30, 1999 were $4,356,322, compared to $5,231,053 for the six-month
period ended June 30, 1998. The $874,731 decrease is primarily due to the cost
cutbacks and reduction of staff at our headquarters in Cambridge.
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We recorded an additional $400,000 of loss on impairment of Superior's
customer lists in the first quarter of 1999 based on our revised projections of
Superior's cash flows after reviewing Superior's performance during the first
quarter of 1999.
Investment and other income was $477,984 for the six months ended June
30, 1999, compared to $154,611 for the six-month period ended June 30, 1998. The
first quarter 1998 includes income received from sale of BioTrack stock held by
the Company whereas the second quarter 1999 includes $362,000 of income recorded
from forgiveness of old payables. Interest and financing expenses of $1,145,704
for the six-month period ended June 30, 1999, compared to $801,151 for the
six-month period ended June 30, 1998, consists of interest expense, debt
placement fees and other related costs. We issued several warrants in connection
with debt placements, the values of which are included in our financing costs.
Liquidity and Capital Resources
As of June 30, 1999, we had a working capital deficit of $384,683,
compared to a working capital deficit of $10,503,773 at December 31, 1998. This
significant improvement in the Company's working capital is due to the
settlement with the former Superior shareholders, the New Jersey bond financing
and sale of Series I preferred stock. Cash was $1,398,284 at June 30, 1999
compared to $97,045 at December 31, 1998. The Company continued raising funds
through short term debt placements. We expect our cash needs for the next 12
months to be approximately $5,000,000. We intend to generate the needed cash
through additional financing activities. We can give no assurance, though, that
we will be able to obtain such financing or, if we do, that the financing will
be sufficient for our needs. If we are not able to raise the needed financing,
we will likely need to seek the protection of the bankruptcy courts. See
"Certain Factors That May Affect Future Results."
In June 1997, we acquired Superior Pharmaceutical Company, of
Cincinnati, Ohio, for an adjusted purchase price of $15.9 million in cash, notes
and stock. The merger agreement guaranteed that the selling shareholders would
receive at least $5,000,000 in the stock value as of June 1998. The agreement
provided that we would make up any shortfall in this guaranteed stock value
through the issuance of additional stock and cash.
The Common Stock traded at approximately $0.50 per share as of June 18,
1998, and we therefore became obligated to pay approximately $4,000,000 in cash
to the former stockholders of Superior. Under the agreement, we then owed the
former stockholders a total of approximately $9,000,000 in common stock, cash
and notes. On July 31, 1998 we entered into a contingent settlement agreement to
reduce the remaining purchase price to approximately $4,000,000. We were unable,
however, to obtain financing sufficient in amount and appropriate in form of
payment (i.e., cash and/or stock) to fund the final settlement.
On December 17, 1998, the former Superior stockholders commenced a
civil action in the Court of Common Pleas, Hamilton County, Ohio. The former
Superior stockholders alleged that we owed them approximately $9,000,000,
including $4,166,667 in connection with promissory notes issued in connection
with the merger as well as $4,817,660 as an adjustment to the purchase price. In
May 1999, we settled all issues between us and the former Superior stockholders.
The former Superior stockholders agreed to dismiss their lawsuit in exchange for
our:
o paying $1,500,000 in cash;
o issuing 1,500,000 shares of Common Stock;
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o issuing warrants to purchase 1,000,000 shares of Common Stock
at a price of $0.86 per share;
o issuing warrants to purchase 300,000 shares of Common Stock at
a price of $0.01 per share; and
o amending Superior's commercial lease agreement.
We recorded a liability of $539,783 for the present value of the
additional rent payable under the lease and wrote off all our other obligations
to the former Superior shareholders, consisting of the acquisition obligation of
$4,083,000, the notes payable obligation of $3,766,667 and accrued interest.
Accordingly, we decreased the carrying value of the customer list by $3,879,669
and the goodwill balance by $329,047 due to the reduction in the purchase price.
We have satisfied various liabilities by divesting substantially all of
our equity ownership in BioTrack, Inc., a subsidiary formed to develop and
commercialize a technology involving tumor localization and tracking. In 1998,
in connection with our shift in business focus, the Board of Directors
determined that BioTrack did not fit into our plan to be a generic drug
manufacturing and distribution company. On April 30, 1998, the Board of
Directors unanimously voted to divest our majority share in BioTrack. Our equity
interest in BioTrack was reduced to approximately 1,300,000 shares, or
approximately 20% of the issued and outstanding shares of BioTrack, as of June
30, 1999.
We have senior secured working capital and lending facilities from
three separate entities. Huntington National Bank has provided working capital
for Superior Pharmaceutical. The initial note matured in June 1998 and since
then, Huntington has extended the facility on a monthly basis. Fleet Capital
provided a term loan for the acquisition of GDI. K&L Financial has provided
working capital for Able Laboratories. We are in default of certain financial
covenants, but we have not defaulted on payment obligations in connection with
the above agreements.
To date we have met substantially all of our capital requirements
through the sale of securities and loans convertible into common stock. The
negative impact of events in 1997 and 1998 has severely limited our ability to
raise capital in a conventional sale of our securities. We have engaged an
investment banking firm that specializes in the turnaround of companies to seek
both debt and equity financing. We cannot give any assurance that we will raise
the needed financing. If we cannot raise such financing, we will not have
adequate working capital for our operations. Under such circumstances we may
have to seek protection of the bankruptcy courts. See "Certain Factors That May
Affect Future Results."
We have also been working with our trade creditors to reduce our
obligations. A substantial majority of the creditors have accepted our payment
plans, which include periodic payments, discounts of amounts outstanding, and
acceptance of shares of Common Stock. We can give no assurance, however, that
our creditors will continue to accept our proposed payment plans or that we will
be able to execute any such plan if it is accepted. If we are unable to meet our
obligations to our trade creditors, we may have to seek the protection of the
bankruptcy courts. See "Certain Factors That May Affect Future Results."
YEAR 2000 COMPLIANCE
Many computer systems and software products could experience problems
handling dates beyond the year 1999 because the systems are coded to accept only
two-digit entries in the date code fields. Inability of products and systems on
which we rely to process these dates could have a material adverse
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effect on our business.
We have assessed our internal processes and systems. We believe that
our sales, administration, and general operations are substantially year 2000
compliant. Prior to purchasing any new equipment or software, it is company
policy to ensure that the specifications include year 2000 compliance.
We intend to query major suppliers and other third parties upon which
we may be dependent to determine the extent of their Year 2000 compliance. We
intend to complete this inquiry and assessment of the Year 2000 readiness of the
systems and products of these suppliers and other third parties as soon as
practicable. However, due to the need to devote management and financial
resources to other matters, we have not as yet completed this inquiry and
assessment.
Contingency Plan
To minimize potential disruptions, we intend to adopt a contingency
plan, if deemed necessary, to address any issues raised during our planned
assessment in 1999. Because no specific instance of material Year 2000
non-compliance has been discovered to date, we have not adopted a contingency
plan to deal with Year 2000 issues.
Costs
Based on our internal investigation to date, we do not expect the total
costs of our Year 2000 review and compliance to have a material adverse effect
on our business or financial results. However, as we have not completed an
inquiry of our material suppliers and other third parties, we may have to spend
a material amount to develop and implement a contingency plan during 1999, if we
find that a material supplier or other third party on whom we rely will face
business interruptions as a result of Year 2000 issues.
Risks
Based on our limited review of our Year 2000 issues to date, we do not
anticipate significant interruption of normal internal operations. The risk
posed by Year 2000 issues depends substantially on the number and type of any
instances of non-compliance that have not yet been discovered by us. To the
extent that our internal systems, or products and services obtained from third
parties, are found not to be year 2000 compliant, we could face business
disruptions which could, in turn, cause delays in meeting operating goals and
could divert significant management resources. Also, because we have not
completed an inquiry of suppliers and other third parties, we have not ruled out
any problems that might result from Year 2000 issues. In the worst case, we
might be unable to acquire necessary raw materials or process orders for our
inventory, and could be forced to curtail or suspend our operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
We do not provide forecasts of our future financial performance.
However, from time to time, information provided by us or statements made by our
employees may contain "forward-looking" information that involves risks and
uncertainties. In particular, statements contained in this Report that are not
historical facts, including statements relating to liquidity and capital
resources, constitute forward-looking statements and are made under the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Our
actual results of operations and financial condition have varied, and may in the
future vary, significantly from those stated in any forward-looking statements.
Factors that may cause such differences include, without limitation, the risks,
uncertainties and other information discussed within this Form 10-QSB, the
matters discussed under the heading "Certain Factors That May Affect Future
Results" in our Annual Report on Form 10-KSB for the year ended December 31,
1998, as well as the accuracy of our internal estimates of revenue and operating
expense levels.
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The following risk factors should be read in conjunction with the
financial statements and related notes thereto. The following factors, among
others, could cause our actual results to differ materially from those contained
in forward-looking statements contained or incorporated by reference in this
report and presented by management from time to time. Such factors, among
others, may have a material adverse effect upon our business, results of
operations and financial condition.
IF WE CONTINUE TO INCUR LOSSES, THE VALUE OF OUR COMMON STOCK WILL LIKELY
DECLINE
Our financial condition is highly uncertain. We have a history of
losses and we anticipate future losses. We have incurred operating losses in
every operating period since our inception. We had an accumulated deficit of
$53,652,377 as of June 30, 1999. We incurred a net loss of $3,498,824 in the six
months ended June 30, 1999.
Our losses have resulted principally from expenses we incurred in
research and development activities, and from general and administrative costs
associated with our development efforts. In addition, our Able subsidiary has
incurred operating losses, primarily because its revenues have not equaled its
expenses. To continue development of our current and proposed products, we will
need to expend substantial additional resources to conduct further product
development and to establish and expand our manufacturing, sales, marketing,
regulatory and administrative capabilities. Therefore, we expect to incur
substantial operating losses over the next several years as we expand our
product programs and commence marketing efforts.
We can give no assurance that we will ever generate substantial
revenues from our business, or achieve profitability.
IF WE CANNOT RAISE SIGNIFICANT ADDITIONAL FUNDS, WE WILL LIKELY FACE BANKRUPTCY
Our history of operating losses raises substantial doubt about our
ability to continue operations. If we are unable to secure significant
additional financing or to renegotiate our agreements with our existing
creditors, we may be obliged to seek protection from our creditors by declaring
bankruptcy. Our independent auditors issued an opinion on our financial
statements as of December 31, 1998 and for the year then ended which included an
explanatory paragraph expressing substantial doubt about our ability to continue
as a going concern. The reasons cited by the independent auditors include the
following:
o we have incurred recurring losses from operations resulting in
a stockholders' deficit and a working capital deficiency at
December 31, 1998;
o we have defaulted on conditions placed upon us by our banks
and other lenders; and
o our ability to use cash generated by our subsidiaries is
restricted under the terms of the subsidiaries' loan
agreements.
WE FACE INTENSE COMPETITION FROM OTHER MANUFACTURERS OF GENERIC DRUGS
The generic drug manufacturing and distribution business is highly
competitive. We compete with several companies that are better capitalized than
we are and that have financial and human resources significantly greater than
ours. Because we manufacture generic drugs, our products by their very nature
are chemically and biologically equivalent to the products of our larger and
profitable competitors. Also, we believe that, as a rule, the first one or two
companies to bring a generic alternative to the market will capture the highest
market share for that product. These larger companies, with their greater
resources, could bring products to market before us, and could capture a
significant share of the market at our expense.
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IF THE BOSTON STOCK EXCHANGE DELISTS OUR COMMON STOCK, WE WILL FACE
GREATER DIFFICULTY RAISING CAPITAL WE NEED TO CONTINUE OPERATIONS
Our Common Stock was delisted from the Nasdaq Stock Market as of the
close of trading on October 6, 1998. We received a notice from the Boston Stock
Exchange on April 12, 1999 informing us that our Common Stock does not meet the
requirements for continued listing on that exchange.
Our Common Stock has been delisted from the Nasdaq Stock Market and may
be delisted from the Boston Stock Exchange. The Boston Stock Exchange requires a
minimum of $500,000 in stockholders' equity for continued listing. As of March
31, 1999, we had an accumulated stockholders deficit of approximately
$4,024,000, a shortfall of approximately $4,524,000, and therefore we did not
meet the listing requirements. We responded to the Boston Stock Exchange,
explaining our plan for regaining compliance with this requirement by June 30,
1999. On July 8, 1999, we advised the Boston Stock Exchange that we expected our
stockholders' equity as of June 30, 1999 would exceed $500,000. Stockholders'
equity as of June 30, 1999 was approximately $848,000. Therefore, as of that
date we met the requirement and so the Common Stock remains listed on the Boston
Stock Exchange. Our Common Stock could face delisting action again, however, if
we do not continue to meet this or other listing requirements.
Delisting of our Common Stock from the Boston Stock Exchange could have
a material adverse effect on the public perception of the value of the Common
Stock and, consequently, on our ability to raise capital necessary for our
continued operations. We anticipate that the Common Stock would continue to be
quoted on the OTC Bulletin Board if it is delisted from the Boston Stock
Exchange.
IF OUR COMMON STOCK BECOMES SUBJECT TO PENNY STOCK RULES, INVESTORS MAY
HAVE GREATER DIFFICULTY SELLING THEIR SHARES
The Securities Enforcement and Penny Stock Reform Act of 1990 applies
to stock characterized as "penny stocks," and requires additional disclosure
relating to the market for penny stocks in connection with trades in any stock
defined as a penny stock. The Securities and Exchange Commission has adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
The exceptions include exchange-listed equity securities and any equity security
issued by an issuer that has
o net tangible assets of at least $2,000,000, if the issuer has
been in continuous operation for at least three years,
o net tangible assets of at least $5,000,000, if the issuer has
been in continuous operation for less than three years, or
o average annual revenue of at least $6,000,000 for the last
three years. Unless an exception is available, the regulations
require the delivery, prior to any transaction involving a
penny stock, of a disclosure schedule explaining the penny
stock market and the risks associated therewith.
If our Common Stock is delisted from the Boston Stock Exchange, then
trading in the Common Stock would be covered by Rules 15g-1 through 15g-6 and
15g-9 promulgated under the Securities Exchange Act. Under those rules,
broker/dealers who recommend such securities to persons other than established
customers and institutional accredited investors must make a special written
suitability determination for the purchaser and must have received the
purchaser's written agreement to a transaction prior to sale. These regulations
would likely limit the ability of broker/dealers to trade in our Common Stock
and thus would make it more difficult for purchasers of Common Stock to sell
their securities in the secondary market. The market liquidity for the Common
Stock could be severely affected.
WE ARE OBLIGATED TO ISSUE A LARGE NUMBER OF SHARES OF COMMON STOCK AT
PRICES BELOW THE MARKET PRICE, WHICH COULD ADVERSELY AFFECT THE VALUE
OF THE COMMON STOCK
We are obligated to issue a large number of shares of Common Stock at
prices lower than market value. Therefore, the Common Stock could lose value if
a large number of shares are issued into the market. At June 30, 1999 we had
56,038,796 shares of Common Stock issued and outstanding. We have issued a large
number of securities, such as options, warrants, convertible preferred stock and
convertible notes, that are convertible by their holders into shares of Common
Stock. As of June 30, 1999, we were obligated to issue up to approximately
8,643,592 shares of Common Stock upon the conversion or
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exercise of convertible securities. We have also reserved 8,744,774 shares of
Common Stock for issuance pursuant to options granted to our employees,
officers, directors and consultants. The holders of these convertible securities
likely would only exercise their rights to acquire Common Stock at times when
the exercise price is lower than the price at which they could buy the Common
Stock on the open market. Therefore, because we would likely receive less than
current market price for any shares of Common Stock issued upon exercise of
options and warrants, the exercise of a large number of these convertible
securities could reduce the per-share market price of Common Stock held by
existing investors. Also, the exercise of a large number of convertible
securities could limit our ability to obtain additional equity capital by
selling Common Stock. In all likelihood, we would be able to sell shares of
Common Stock elsewhere on more favorable terms at the time the holders of
convertible securities choose to exercise their rights.
THE VALUE OF THE COMMON STOCK FLUCTUATES WIDELY AND COULD CAUSE STOCKHOLDERS TO
LOSE MONEY ON THEIR INVESTMENT IN OUR STOCK
The price of our Common Stock has fluctuated widely in the past, and it
is likely that it will continue to do so in the future. The market price of our
Common Stock could fluctuate substantially based on a variety of factors,
including:
o quarterly fluctuations in our operating results;
o announcements of new products by us or our competitors;
o key personnel losses;
o sales of common stock; and
o developments or announcements with respect to industry
standards, patents or proprietary rights.
The market price of our Common Stock has fluctuated between $70.00 and
$.10 from January 1, 1993 to December 31, 1998 and was approximately $.51 on
August 13, 1999. Over the past twelve months, the Common Stock has fluctuated
between approximately $.89 and approximately $.05. These broad market
fluctuations could adversely affect the market price of our Common Stock, in
that at the current price, any fluctuation in the dollar price per share could
constitute a significant percentage decrease in the value of a stockholder's
investment. Also, when the market price of a stock has been volatile, holders of
that stock have often instituted securities class action litigation against the
company that issued the stock. If any of our stockholders brought such a lawsuit
against us, we could incur substantial costs defending the lawsuit. A lawsuit
could also divert the time and attention of our management. Any of these events
could seriously harm our business.
WE MAY FACE YEAR 2000 ISSUES
Many software products and computer systems are coded to accept only
two digit entries in the date code field. These date code fields will need to
accept four digit entries to distinguish 21st century dates from 20th century
dates. This ability is commonly referred to as being Year 2000 compliant. We
have not conducted a Year 2000 compliance review of the computer software we
use, or that is used by our vendors and suppliers use. If the software and
computer systems we use are not Year 2000 compliant, we could face system
failures or miscalculations causing disruptions of operations, including a
temporary inability to process transactions, send invoices or engage in similar
normal business activities. If the systems maintained by our vendors and
suppliers are not Year 2000 compliant, we could incur significant unanticipated
expenses to remedy any problems or to replace affected vendors and suppliers. We
have not ruled out any problem that might result from Year 2000 issues. In the
worst case, we might be unable to obtain necessary raw materials or process
orders for our inventory, and we could be forced to curtail or suspend our
operations.
WE MAY FACE PRODUCT LIABILITY FOR WHICH WE ARE NOT ADEQUATELY INSURED
The testing, marketing and sale of drug products for human use is
inherently risky. Liability might result from claims made directly by consumers
or by pharmaceutical companies or others selling our products. Superior, GDI and
Able presently carry product liability insurance in amounts that we
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believe to be adequate, but we can give no assurance that such insurance will
remain available at a reasonable cost or that any insurance policy would offer
coverage sufficient to meet any liability arising as a result of a claim. We can
give no assurance that we will be able to obtain or maintain adequate insurance
on reasonable terms or that, if obtained, such insurance will be sufficient to
protect us against such potential liability or at a reasonable cost. The
obligation to pay any product liability claim or the recall of a product could
have a material adverse affect on our business, financial condition and future
prospects.
INTENSE REGULATION BY GOVERNMENT AGENCIES MAY DELAY OUR EFFORTS TO
COMMERCIALIZE OUR PROPOSED DRUG PRODUCTS
Research, preclinical development, clinical trials, manufacturing and
marketing of our proposed products are subject to extensive regulation by
numerous governmental authorities in the United States (including the FDA), and
other equivalent foreign regulatory authorities. The process of obtaining FDA
and other required regulatory approvals is lengthy and expensive. We can give no
assurance that we will be able to obtain the necessary approvals for clinical
testing or for the manufacturing or marketing of our proposed products. Present
and future governmental regulatory processes could prevent or delay approval of
our products or make them too costly for us to pursue. Also, if we failed to
comply with applicable regulatory requirements we could face fines, suspensions
of regulatory approvals, product recalls, operating restrictions and criminal
prosecution. Our success in the generic drug market depends in part on our
ability to obtain FDA approval of Abbreviated New Drug Applications for our new
products, as well as our ability to procure a continuous supply of raw materials
and to validate the manufacturing processes used to produce consistent test
batches for FDA approval. Sources for certain materials for our products must be
approved by the FDA, and in many instances only one source has been approved. If
raw materials from a specified supplier were to become unavailable, we would be
required to file a supplement to our Abbreviated New Drug Application and
revalidate the manufacturing process using a new supplier's materials. This
could cause a delay of several months in the manufacture of the drug involved
and the consequent loss of potential revenue and market share. For example, for
a period of time, we were unable to acquire the active drug for our clorazapate
dipotassium product and so we had to discontinue production of the product. The
active drug ingredient has since become available again. Additionally, there is
often a time lag, sometimes significant, between the receipt of Abbreviated New
Drug Application approval and the actual marketing of the approved product due
to this validation process.
Our Able Laboratories facility is subject to plant inspections by the
FDA to determine compliance with current Good Manufacturing Practices standards.
We could be subject to fines and sanctions such as the suspension of
manufacturing or the seizure of drug products if we were found not to comply
with current Good Manufacturing Practices standards.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
On March 12, 1999, the Company commenced a civil lawsuit against Kali
Laboratories, Inc. (hereafter "Kali"), its principal officer, and two of its
employees in the Superior Court of New Jersey, Chancery Division, in Middlesex
County. The litigation arises out of the Company's 1997 agreement with Kali for
the development and marketing of seven products. The Company seeks to 1) recover
monetary damages for defendants' breaches of contract and confidentiality,
misappropriation of the Company's intellectual property, and unfair dealing, and
2) enjoin the defendants from using the Company's intellectual property for
their purposes. In May of 1999, the defendants filed counterclaims against the
Company and three of its corporate officers. In its counterclaim, Kali claims
monetary damages for breach of contract, and alleges ownership of the
intellectual property. The employee defendants, who are former employees of the
Company, claim to have been defamed and wrongfully terminated. The Company and
its officers share a common legal defense to these counterclaims, and intend
vigorously to defend against them.
Except for the above matter, the Company is not presently a party to
any pending legal proceedings, other than routine litigation that is incidental
to the business, which would have a material adverse effect on the Company's
financial position or results of operations for the six-month period ended June
30, 1999.
ITEM 2. CHANGES IN SECURITIES
---------------------
a. Not applicable.
b. Sales of Unregistered Securities - In the three months ended June
30, 1999, the Company sold the following securities:
On April 27, 1999, the Company issued 500,000 shares of common stock to
an employee who had advanced a bridge loan to us in October 1997. The entire
balance of $175,000 with accumulated interest was settled with issuance of
Common Stock.
In May and June 1999, the Company received $3,000,000 from the issuance
of 3,000 shares of Series I Preferred Stock to various unaffiliated investors.
Shares of Series I Preferred Stock are convertible into Common Stock at 80% of
the average of the closing bid price of Common Stock for the three selected,
closing bid prices over the five (5) trading days immediately preceding any
conversion date, as selected by the stockholder. The Company issued 165,662
warrants at an exercise price of $0.91 and 34,722 warrants at an exercise price
of $0.396 in connection with this financing.
On May 27, 1999, the Company issued 1,500,000 shares to the former
shareholders of Superior together with a warrant to purchase 1,000,000 shares at
an exercise price of $0.86 and a warrant to purchase 300,000 shares at an
exercise price of $0.01 as a full and final settlement of all its acquisition
obligations of Superior.
25
<PAGE>
On June 14, 1999, the Company issued 2,750,000 shares to a consultant
retained to provide investor relations services and strategic business planning,
pursuant to the Company's agreement with the consultant.
During the second quarter the Company issued approximately 4,480,000
non-qualified stock options to various employees at Able Laboratories. The stock
options were issued at an exercise price of $0.25 and are exercisable for a
period of ten years. The vesting period of these options is between twelve and
thirty-six months.
During the quarter ending June 30, 1999, the Company issued an
aggregate of 8,754,125 shares of Common Stock upon the exercise of options and
warrants and conversion of convertible debt and equity securities.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
-----------------------------
The Company has incurred recurring losses from operations resulting in
an accumulated deficit of $53,652,377 and a working capital deficiency of
$384,683 at June 30, 1999. In addition, the Company is in default with respect
to certain covenants in its debt agreements and obligated to make payments as
follows:
Sirrom Capital Corporation ("Sirrom") and Odyssey Investment Partners,
L.P. ("Odyssey") - The Company issued secured promissory notes in the aggregate
principal amount of $3,000,000 on June 18, 1997 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.
The Huntington National Bank - The Company's subsidiary, Superior, has
a line of credit with the Huntington National Bank in the amount of
approximately $4,500,000. At June 30, 1999, Superior is in default of certain
loan covenants, in the loan and security agreement with the bank. Superior is in
negotiations with the bank with respect to the defaults, but has not received a
waiver of the defaults at the present time.
The Company has guaranteed the loan to the bank. The loan and security
agreement with the bank requires the Company to achieve a tangible net worth,
exclusive of the tangible net worth of Superior, of $4,000,000, which the
Company has not achieved at June 30, 1999.
The loan and security agreement with the bank allowed Superior to make
distributions to the Company in amounts sufficient to enable the Company to pay
the debt service due to the former stockholders of Superior, provided, however,
that such permitted payments cannot be made by Superior in the event of a
default.
26
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) List of Exhibits
The following exhibits, required by Item 601 of Regulation S-B, are filed
as part of this Quarterly Report on Form 10-QSB. Exhibit numbers, where
applicable, in the left column correspond to those of Item 601 of Regulation
S-B.
Exhibit
No. Description of Exhibit
- --- ----------------------
10.1 Form of 9% Subordinated Convertible Debenture
10.2 Securities Purchase Agreement dated May 13, 1999 by and among
the Company and the several purchasers named therein(1)
10.3 Form of Debenture issued in connection with the May 13, 1999
Securities Purchase Agreement(2)
10.4 Form of Common Stock Purchase Warrant issued in connection with
the May 13, 1999 Securities Purchase Agreement(3)
10.5 Registration Rights Agreement dated May 13, 1999(4)
10.6 Form of Exchange Agreement dated June 29, 1999(5)
10.7 Certificate of Designations, Preferences, and Rights of Series
I Preferred Stock(6)
10.8 Loan Agreement between Able Laboratories, Inc. and New Jersey
Economic Development Authority dated June 1, 1999
10.9 $2,000,000 Promissory Note of Able Laboratories, Inc. dated
June 1, 1999
10.10 Leasehold Mortgage, Security Agreement, Assignment of Rents and
Financing Statement dated June 1, 1999
10.11 Guaranty of DynaGen, Inc. dated June 1, 1999 in favor of New
Jersey Economic Development Authority
10.12 Warrant to Purchase 100,000 shares of Common Stock in the name
of Project Capital Partners, LLC
10.13 Consulting Agreement with Investor Relations Services, Inc.
dated April 1, 1999
27 Financial Data Schedule
----------------
(1) Filed as Exhibit 4.2 to the Company's Registration Statement on
Form S-3, File No. 333-82785, and incorporated herein by
reference.
(2) Filed as Exhibit 4.3 to the Company's Registration Statement on
Form S-3, File No. 333-82785, and incorporated herein by
reference.
(3) Filed as Exhibit 4.4 to the Company's Registration Statement on
Form S-3, File No. 333-82785, and incorporated herein by
reference.
(4) Filed as Exhibit 4.5 to the Company's Registration Statement on
Form S-3, File No. 333-82785, and incorporated herein by
reference.
(5) Filed as Exhibit 4.6 to the Company's Registration Statement on
Form S-3, File No. 333-82785, and incorporated herein by
reference.
(6) Filed as Exhibit 4.7 to the Company's Registration Statement on
Form S-3, File No. 333-82785, and incorporated herein by
reference.
27
<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
Duly Authorized Officer and
Principal Financial and
Accounting Officer
Dated: August 16, 1999
28
<PAGE>
EXHIBIT INDEX
Exhibit
No. Item
--- ----
10.1 Form of 9% Subordinated Convertible Debenture
10.2 Securities Purchase Agreement dated May 13, 1999 by and among
the Company and the several purchasers named therein(1)
10.3 Form of Debenture issued in connection with the May 13, 1999
Securities Purchase Agreement(2)
10.4 Form of Common Stock Purchase Warrant issued in connection with
the May 13, 1999 Securities Purchase Agreement(3)
10.5 Registration Rights Agreement dated May 13, 1999(4)
10.6 Form of Exchange Agreement dated June 29, 1999(5)
10.7 Certificate of Designations, Preferences, and Rights of Series
I Preferred Stock(6)
10.8 Loan Agreement between Able Laboratories, Inc. and New Jersey
Economic Development Authority dated June 1, 1999
10.9 $2,000,000 Promissory Note of Able Laboratories, Inc. dated
June 1, 1999
10.10 Leasehold Mortgage, Security Agreement, Assignment of Rents and
Financing Statement dated June 1, 1999
10.11 Guaranty of DynaGen, Inc. dated June 1, 1999 in favor of New
Jersey Economic Development Authority
10.12 Warrant to Purchase 100,000 shares of Common Stock in the name
of Project Capital Partners, LLC
10.13 Consulting Agreement with Investor Relations Services, Inc.
dated April 1, 1999
27 Financial Data Schedule
----------------
(1) Filed as Exhibit 4.2 to the Company's Registration Statement on
Form S-3, File No. 333-82785, and incorporated herein by
reference.
(2) Filed as Exhibit 4.3 to the Company's Registration Statement on
Form S-3, File No. 333-82785, and incorporated herein by
reference.
(3) Filed as Exhibit 4.4 to the Company's Registration Statement on
Form S-3, File No. 333-82785, and incorporated herein by
reference.
(4) Filed as Exhibit 4.5 to the Company's Registration Statement on
Form S-3, File No. 333-82785, and incorporated herein by
reference.
(5) Filed as Exhibit 4.6 to the Company's Registration Statement on
Form S-3, File No. 333-82785, and incorporated herein by
reference.
(6) Filed as Exhibit 4.7 to the Company's Registration Statement on
Form S-3, File No. 333-82785, and incorporated herein by
reference.
29
EXHIBIT 10.1
------------
9% CONVERTIBLE SUBORDINATED DEBENTURE
$----------- Cambridge, Massachusetts
April 8, 1999
On May 8, 2000 (the "Maturity Date"), for value received, the
undersigned DynaGen, Inc., a Delaware corporation (the "Maker"), promises to pay
to _______________ (the "Payee"), the principal sum of _____________________
United States Dollars ($--------) or the then outstanding principal amount
hereof, together with interest on any and all principal amounts remaining unpaid
hereunder from time to time outstanding from the date hereof until payment in
full. This Debenture is one of a series of Debentures of like tenor issued on or
about the date hereof.
1. INTEREST AND PRINCIPAL
1.01 Interest. The Maker shall pay interest on the outstanding
principal amount of this Debenture from the date hereof until such principal
amount is paid in full at the rate of Nine percent (9%) per annum. Interest
payments shall be made, at the option of the Maker, in cash or in shares of
common stock, $.01 par value per share ("Common Stock") of Maker valued at the
closing price on the last trading before payment on June 30, 1999, September 30,
1999 December 31, 1999, and March 31, 2000 (the "Payment Dates").
1.02 Principal. The entire outstanding principal together with interest
accrued thereon on amount of this Debenture shall be automatically converted
into shares of Common Stock at the Conversion Rate (as defined in Section 2.01
hereof) applicable on the Maturity date and shall be due and payable on May 8,
2000.
2. CONVERSION
2.01 Optional Conversion. Subject only to the mandatory conversion
provisions and special conversion provisions of section 2.02 and 2.03, this
Debenture shall be convertible into fully paid and nonassessable shares of
Common Stock at the Conversion Rate (as hereinafter defined) at any time prior
to Maturity at the discretion of the Payee. Conversion Rate shall mean a number
of shares determined by (x) multiplying (a) the then issued and outstanding
shares of Common Stock (primary) by (b) .05 (assuming an entire issuance of
$1,000,000 of Debentures in this series of Debentures or a pro rata increase or
decrease in such .05 to the extent that the aggregate issuance of Debentures
exceeds or falls short of $1,000,000) and (y) multiplying the product of (a) and
(b) by a fraction the numerator of which shall be the principal amount of
Debenture proposed to be converted and the denominator of which shall be the
aggregate principal amount of all Debentures issued in this series of
Debentures.
<PAGE>
2.02 Mandatory Conversion. The entire principal and accrued interest of
the Debenture shall be automatically converted (1) at the then applicable
Conversion Rate immediately prior to the closing of a firm commitment
underwritten public offering in which the aggregate public offering price to the
public equals or exceeds $10,000,000, (2) immediately prior to the closing of a
sale of all or substantially all of the assets of Maker or a merger of Maker
with or into another entity in which Maker is not the surviving entity into a
number of shares of Common Stock with a value equal to 5% of the consideration
received by Maker or its stockholders in such a transaction (assuming an entire
issuance of $1,000,000 in this series of Debentures and otherwise adjusted as
set forth in Section 2.01) multiplied by a fraction the numerator of which is
the principal amount of this Debenture and the denominator of which is the
aggregate principal amount of all Debentures in this series of Debentures, (3)
upon the exercise by Mr. Cusick of at least half of any options to purchase
shares of Common Stock of Maker granted to him during 1999, and (4) upon
Maturity.
2.03 Special Conversion. The entire principal and accrued interest of
the Debenture shall be automatically converted into the number of New Issue
Securities (as hereinafter defined) as could have been acquired in a New Issue
(as hereinafter defined) for outstanding principal amount plus accrued interest
on this Debenture; provided that the conversion rate of the New Issue Securities
is equal to or better than that of the Debentures. New Issue shall mean a
private placement of convertible preferred stock or debentures taking place
within 4 months of the date hereof and with a conversion rate calculation method
similar to that set forth in Section 2.01 of this Debenture. New Issue
Securities shall mean the preferred stock or debentures issued in the New Issue.
3. SUBORDINATION
3.01 Subordinated Debt. The indebtedness evidenced by this instrument
("Subordinated Debt") is subordinate and junior in right of payment, to the
extent and in the manner set forth below, to all Superior Debt (as defined in
Section 3.02 ) of the Maker to the extent provided in this section.
3.02 Superior Debt. For the purpose of these subordination provisions
the term "Superior Debt" shall mean all principal, interest, charges, expenses,
and attorneys' fees arising out of or relating to all indebtedness of Maker
owing to the First National Bank of Boston or any other bank or institutional
lender ("Bank") whether outstanding on the date of this Debenture or
subsequently incurred unless under the instrument evidencing the same or under
which the same is outstanding, it is expressly provided that such indebtedness
is junior and subordinate to other indebtedness and obligations of the Maker
(such indebtedness of the Maker to which this instrument is subordinate and
junior being referred to as "Superior Debt").
3.03 Permitted Payments. Maker shall not make any regularly scheduled
payment of accrued interest on any Subordinated Debt unless at the time of such
scheduled interest payment there exists no event of default under the Superior
Debt and so long as such payment would not thereby result in such an event of
default.
2
<PAGE>
3.04 Default on Superior Debt.
(a) In the event the Maker shall default in the payment of any
principal or interest on any Superior Debt when the same becomes due
and payable, whether at maturity or at a date fixed for prepayment or
by declaration or otherwise, then, unless and until such default shall
have been cured or waived or shall have ceased to exist, no direct or
indirect payment (in cash, property or securities or by set-off or
otherwise) shall be made or agreed to be made on account of the
principal or interest on any Subordinated Debt, or as a sinking fund
for the Subordinated Debt, or in respect of any redemption, retirement,
purchase or other acquisition of any of the Subordinated Debt.
(b) Upon the happening of an event of default with respect to any
Superior Debt, as defined in the instrument under which the same is
outstanding, which occurs at the maturity of same or which permits Bank
to accelerate the maturity of the Superior Debt (other than under
circumstances when the terms of SECTION 3.04(A) are applicable), then,
unless and until such event of default shall have been cured or waived
or shall have ceased to exist, no direct or indirect payment (in cash,
property or securities or by set-off or otherwise) shall be made or
agreed to be made on account of the principal of, or premium, if any,
or interest on any Subordinated Debt, or as a sinking fund for the
Subordinated Debt, or in respect of any redemption, retirement,
purchase or other acquisition of any of the Subordinated Debt.
3.05 Further Assurances. Payee shall sign any agreement which may be
required by a Bank to either (a) evidence this subordination or (b) extend this
subordination to meet the requirements of the Bank.
4. DEFAULTS AND REMEDIES.
4.01 Events of Default. An "Event of Default" shall occur if:
(a) the Maker defaults in the payment of interest on this
Debenture when the same becomes due and payable and such Default
continues for a period of 30 days;
(b) the Maker defaults in the payment of principal on this
Debenture when the same becomes due and payable, at maturity or
otherwise;
(c) the Maker fails to comply with any of the other agreements
contained in this Debenture, and the Default continues for the period
and after the notice specified below; and
(d) the Maker pursuant to or within the meaning of any Bankruptcy
Law (as defined below):
(i) commences a voluntary case;
3
<PAGE>
(ii) consents to the entry of an order against it for
relief in an involuntary case; or
(iii) makes a general assignment for the benefit of its
creditors; or
(e) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Maker in an involuntary
case;
(ii) appoints a Custodian (as hereinafter defined) for
all or substantially all of the assets of the Company; or
(iii) orders a liquidation of the Company.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law. The term "Custodian" means any receiver, trustee,
assignee, liquidator, or similar official under any Bankruptcy Law.
A default under clause (c) above shall not constitute an Event of
Default until Payee notifies the Maker of the Default and the Maker does not
cure the Default within 60 days of such notice. The notice must specify the
Event of Default, demand that it be remedied, and state that it is a notice of
Event of Default.
4.2 Acceleration. If an Event of Default occurs and is continuing, the
holder of this Debenture may, by notice to the Maker, declare the principal of
and accrued interest on this Debenture to be immediately due and payable.
4.3 Other Remedies. Subject to SECTION 2.02, if an Event of Default
occurs and is continuing, the holder of this Debenture may pursue any available
remedy to collect the payment of interest, principal or premium, if any, on this
Debenture or to enforce any provision of this Debenture. A delay or omission by
the holder of this Debenture in exercising any right or remedy accruing upon an
Event of Default shall not impair the right or remedy or constitute a waiver or
acquiesce in the Event of Default. All remedies are cumulative to the extent
permitted by law.
5. USURY.
It is the intention of the parties hereto to conform strictly to
applicable usury laws now or hereafter in effect. In the event that any of the
terms or provisions of this Debenture are in conflict with applicable usury law
this SECTION 5 shall govern as to such terms or provisions, and this Debenture
shall in all other respects remain in full force and effect. If any transaction
contemplated hereby would be usurious, it is agreed that the aggregate of all
consideration which constitutes interest under applicable law that is contracted
for, charged or received under this Debenture shall
4
<PAGE>
under no circumstances exceed the maximum interest allowed by applicable law.
Accordingly, if interest in excess of the legal maximum is contracted for,
charged or received: (i) this Debenture shall be automatically reformed so that
the effective rate of interest shall be reduced to the maximum rate of interest
permitted by applicable law, for the purpose of determining said rate and to the
extent permitted by applicable law, all interest contracted for, charged or
received shall be amortized, prorated and spread throughout the full term of
this Debenture so that the effective rate of interest is uniform throughout the
life of this Debenture, and (ii) any excess of interest over the maximum amount
allowed under applicable law shall be applied as a credit against the then
unpaid principal amount hereof.
6. MISCELLANEOUS
The undersigned hereby waives presentment, demand for payment, notice
of dishonor, and any and all other notices or demands in connection with the
delivery, acceptance, performance, default or enforcement of this Debenture, and
hereby consents to any extensions of time, renewals, releases of any party to
this Debenture, waivers or modifications that may be granted or consented to by
the Payee in respect to the time of payment or any other provision of this
Debenture. THIS DEBENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS (EXCLUSIVE OF THE LAWS GOVERNING CONFLICTS OF LAWS) OF THE STATE OF
MASSACHUSETTS.
DYNAGEN, INC.
By: ___________________________________
Name: Dhananjay Wadekar
Title: Executive Vice President
5
EXHIBIT 10.8
------------
LOAN AGREEMENT
Dated as of June 1, 1999
by and between
NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY
and
ABLE LABORATORIES, INC.
Relating to New Jersey Economic Development Authority
$1,700,000 Industrial Development Revenue Bonds
(Able Laboratories, Inc. Project) Series 1999A
and
$300,000 Industrial Development Revenue Bonds
(Able Laboratories, Inc. Project) Series 1999B (Taxable)
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I - DEFINITIONS.......................................................4
Section 1.01. Definitions...........................................4
Section 1.02. Content of Certificates and Opinions..................4
Section 1.03. Interpretation........................................4
ARTICLE II - THE LOAN; USE OF PROCEEDS........................................6
Section 2.01. Loan of Funds to the Borrower.........................6
Section 2.02. Use of Proceeds.......................................6
Section 2.03. Excess Proceeds.......................................6
Section 2.04. Covenants for Benefit of Bondholders..................6
ARTICLE III - PAYMENT PROVISIONS..............................................7
Section 3.01. Loan Payments.........................................7
Section 3.02. Restoration of Debt Service Reserve Fund; Payments
into Operating Expense Reserve Fund and Capital
and Maintenance Fund................................7
Section 3.03. Time of Loan Payments.................................8
Section 3.04. Additional Payments; Taxes............................8
Section 3.05. Acceleration of Payment to Redeem Bonds..............10
Section 3.06. No Defense or Set-Off................................10
Section 3.07. Termination Upon Payment or Defeasance of Bonds......10
Section 3.08. Assignment of Authority's Rights.....................10
Section 3.09. Assignment by Borrower...............................11
Section 3.10. Indemnity Against Claims.............................11
Section 3.11. Authority is Conduit Issuer; Borrower is Real Party
in Interest........................................13
Section 3.12. Operating Account....................................13
ARTICLE IV - BORROWER OBLIGATIONS............................................16
Section 4.01. General Obligation of the Borrower...................16
Section 4.02. [Reserved]...........................................16
Section 4.03. Maintenance and Operation of the Project.............16
Section 4.04. Maintenance of Existence.............................17
Section 4.05. Compliance with Laws.................................17
Section 4.06. Notice of Bankruptcy Case Commencement...............17
Section 4.07. Project Users........................................18
ARTICLE V - THE PROJECT......................................................19
Section 5.01. Acquisition, Construction and Installation of the
Project............................................19
Section 5.02. Plans and Specifications.............................19
Section 5.03. Issuance of the Bonds; Application of Proceeds.......19
Section 5.04. Disbursements from the Project Fund..................19
Section 5.05. Borrower Required to Pay Costs in Event Project Fund
Insufficient.......................................22
Section 5.06. Completion Date......................................22
Section 5.07. Investment of Fund Moneys............................22
ARTICLE VI - INSURANCE; DESTRUCTION, DAMAGE, EMINENT DOMAIN..................23
Section 6.01. Insurance to be Maintained...........................23
Section 6.02. Destruction, Damage and Eminent Domain...............24
-i-
<PAGE>
Section 6.03. Notice of Property Loss..............................24
Section 6.04. Disposition of Casualty Insurance and Condemnation
Award Proceeds.....................................24
ARTICLE VII - COVENANTS OF THE BORROWER......................................26
Section 7.01. Compliance with Laws.................................26
Section 7.02. Power to Perform Obligations.........................26
Section 7.03. Inspection...........................................26
Section 7.04. Additional Information...............................26
Section 7.05. Tax-Exemption........................................27
Section 7.06. Hazardous Substances.................................32
Section 7.07. No Material Proceedings Affecting Borrower...........33
Section 7.08. Tax Filings..........................................33
Section 7.09. No Existing Defaults.................................33
Section 7.10. No Material Misstatements or Omissions...............33
Section 7.11. Inducement to Borrower...............................34
Section 7.12. Borrower's Reporting Obligations.....................34
Section 7.13. Cooperation with Trustee.............................34
Section 7.14. Affirmative Action and Prevailing Wage Regulations...34
Section 7.15. Costs and Expenses...................................35
Section 7.16. Rate Covenant........................................36
Section 7.17. Operating Budget.....................................36
Section 7.18. Operating Expense Reserve Fund; Capital and
Maintenance Fund...................................36
Section 7.19. Liquidity Covenant...................................37
Section 7.20. Trade Payables Covenant..............................37
Section 7.21. Additional Indebtedness..............................37
Section 7.22. Financial Statements.................................38
Section 7.23. Year 2000 Compliance.................................38
Section 7.24. Continuing Disclosure................................38
ARTICLE VIII - EVENTS OF DEFAULT AND REMEDIES................................40
Section 8.01. Events of Default....................................40
Section 8.02. Acceleration.........................................41
Section 8.03. Payment of Loan Payments on Default; Suit Therefor...41
Section 8.04. Other Remedies.......................................42
Section 8.05. Waiver...............................................42
Section 8.06. Cumulative Rights....................................42
Section 8.07. No Exercise of Remedies Without Consent of
Majority Owners....................................43
Section 8.08. Determination of Taxability Not a Default............43
ARTICLE IX - OPTIONS.........................................................44
Section 9.01. Option to Terminate Upon Defeasance..................44
ARTICLE X - MISCELLANEOUS....................................................45
Section 10.01. Approval of Indenture...............................45
Section 10.02. Taxes -Rights of Authority to Pay...................45
Section 10.03. Illegal Provisions Disregarded......................45
Section 10.04. Limitation of Liability of the Authority............45
Section 10.05. No Recourse as to the Authority.....................46
Section 10.06. Reference to Statute or Regulation..................46
-ii-
<PAGE>
Section 10.07. Notices.............................................46
Section 10.08. Applicable Law......................................47
Section 10.09. Amendments..........................................47
Section 10.10. Term of Agreement...................................47
Section 10.11. Amounts Remaining in Debt Service Fund..............48
Section 10.12. Survival of Covenants, Conditions and
Representations...................................48
Section 10.13. Headings............................................48
Section 10.14. Multiple Counterparts...............................48
Section 10.15. Consent.............................................48
Section 10.16. Filing of Other Documents...........................48
Exhibit A - Addendum to Construction Contract...............................A-1
Exhibit B - Contractor's Certificate and Agreement..........................B-1
Exhibit C - Contractor's Completion Certificate.............................C-1
-iii-
<PAGE>
THIS LOAN AGREEMENT, dated as of June 1, 1999 (this "Agreement"), by
and between NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY, a public body corporate
and politic constituting an instrumentality of the State of New Jersey (the
"Authority") and ABLE LABORATORIES, INC. a Delaware corporation, duly qualified
to transact business in the State of New Jersey corporation (the "Borrower").
WITNESSETH:
-----------
WHEREAS, the New Jersey Economic Development Authority Act,
constituting Chapter 80 of the Pamphlet Laws of 1974 of the State of New Jersey,
approved on August 7, 1974, as amended and supplemented (the "Act"), declares it
to be in the public interest and to be the policy of the State of New Jersey
(the "State") to foster and promote the economy of the State, increase
opportunities for gainful employment and improve living conditions, assist in
the economic development or redevelopment of political subdivisions within the
State, and otherwise contribute to the prosperity, health and general welfare of
the State and its inhabitants by inducing manufacturing, industrial, commercial,
recreational, retail, service and other employment-promoting enterprises to
locate, remain or expand within the State by making available financial
assistance; and
WHEREAS, the Authority, to accomplish the purposes of the Act, is
empowered to extend credit to such employment-promoting enterprises in the name
of the Authority on such terms and conditions and in such manner as it may deem
proper for such consideration and upon such terms and conditions as the
Authority may determine to be reasonable; and
WHEREAS, Borrower has requested that the Authority provide funds to
finance a project (the "Project") consisting of (i) acquiring additional
equipment for an existing manufacturing facility in South Plainfield, New
Jersey, (ii) providing certain initial deposits into Funds and Accounts
established under the Indenture, (iii) paying certain costs of issuance of the
Bonds, and (iv) funding a debt service reserve fund for the Bonds; and
WHEREAS, pursuant to and in accordance with the provisions of the Act
and resolutions adopted by the Authority on April 13, 1999, May 11, 1999 and
June 8, 1999 (collectively, the "Resolution"), the Authority has authorized and
undertaken to issue $1,700,000 aggregate principal amount of its Industrial
Development Revenue Bonds (Able Laboratories, Inc. Project) Series 1999A (the
"Series 1999A Bonds") and $300,000 aggregate principal amount of its Industrial
Development Revenue Bonds (Able Laboratories, Inc. Project) Series 1999B
(Taxable) (the "Series 1999B Bonds" and together with the Series 1999A Bonds,
the "Bonds") for the purpose of providing funds for, among other things,
financing the Project; and
WHEREAS, the Act provides that the Bonds shall be secured by a pledge
of, and have a lien upon, the revenues and receipts of Borrower pursuant to this
Agreement; and
WHEREAS, the Bonds are to be issued under and secured by a Trust
Indenture of even date herewith (the "Indenture"), between the Authority and
U.S. Bank Trust National Association, as trustee (the "Trustee"); and
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WHEREAS, this Agreement provides that the Authority will loan the
proceeds of the Bonds to the Borrower to finance, among other things, the
Project and the Borrower will agree, among other things, to repay the loan in
installments equal to payments of debt service on the Bonds when due; and
WHEREAS, the Borrower has agreed to make payments pursuant to this
Agreement sufficient in the aggregate to pay fully when due the principal of and
interest on the Bonds, and related expenses; and
WHEREAS, as additional evidence of and security for all of its payment
obligations hereunder, the Borrower has executed and delivered its promissory
note (as amended from time to time, the "Note") to the Authority, which the
Authority will assign to the Trustee, and payments made pursuant to the Note
will be sufficient to repay the loan at the times and in the installments
sufficient to provide the Authority with money to pay the debt service on the
Bonds; and
WHEREAS, the Borrower, to secure the Bonds and its obligations under
this Agreement and the Note in connection with the Bonds, will execute and
deliver to the Authority, and the Authority will assign to the Trustee, a
Leasehold Mortgage, Security Agreement, Assignment of Rents and Financing
Statement, dated as of June 1, 1999 (as amended and supplemented from time to
time, the "Mortgage"), granting (i) a first mortgage lien on its leasehold
interest in the Project, (ii) a first security interest in the Borrower's
Equipment purchased with the proceeds of the Bonds (as such term is defined in
the Uniform Commercial Code as in effect in the State), subject to Permitted
Encumbrances identified therein and (iii) a subordinate security interest in the
Accounts, Chattel Paper, Gross Revenues, Documents, Equipment of the Borrower
not financed with the proceeds of the Bonds, General Intangibles, Instruments
and Inventory (as such terms are defined in the Uniform Commercial Code as in
effect in the State), subject to Permitted Encumbrances identified therein; and
WHEREAS, as additional evidence of and security for all of its payment
obligations hereunder, the Borrower has caused its corporate parent, DynaGen,
Inc., a Delaware corporation (the "Guarantor") to execute and deliver a Guaranty
Agreement dated as of June 1, 1999 (as amended from time to time, the
"Guaranty") to the Authority, which the Authority will assign to the Trustee,
subject to reserved rights, in which the Guarantor guarantees the payment and
performance obligations of the Borrower under this Agreement, the Note and the
Mortgage; and
WHEREAS, as security for the full and prompt payment and performance of
all its obligations under the Indenture, including, specifically, without
limiting the generality of the foregoing, its obligation to make payment of
principal of and interest on the Bonds when due, the Authority has, pursuant to
the provisions of the Indenture, assigned to the Trustee all of its right, title
and interest in, to and under this Agreement (except its right to
indemnification and to receive its fees and expenses hereunder and to enforce
the public purpose covenants of the Borrower set forth in this Agreement),
including without limitation, the right to receive the installment payments
payable by the Borrower hereunder; and
WHEREAS, the Authority hereby finds and determines that the financing
of the Project will comply with the purposes and provisions of the Act; and
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WHEREAS, the execution and delivery of this Agreement and the
Indenture, and the issuance of the Bonds under the Act, have been in all
respects duly and validly authorized by the Resolution of the Authority, duly
adopted and approved; and
WHEREAS, the Authority and the Borrower desire to enter into this
Agreement to set forth the terms and conditions upon which the Authority will
make the Loan, as hereinafter defined.
NOW, THEREFORE, in consideration of the above premises and of the
mutual covenants hereinafter contained, and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Terms used as defined terms in the recitals
shall have the same meanings throughout this Agreement and, in addition thereto,
capitalized terms used and not defined herein shall have the meanings assigned
to such terms in the Indenture.
Section 1.02. Content of Certificates and Opinions. The Trustee may,
but shall not be obligated to, require that every certificate or opinion
provided for in this Agreement with respect to compliance with any provision
hereof shall include (i) a statement to the effect that the Person making or
giving such certificate or opinion has read such provision and the definitions
herein relating thereto; (ii) a brief statement as to the nature and scope of
the examination or investigation upon which the certificate or opinion is based;
(iii) a statement to the effect that in the opinion of such Person, he has made
or caused to be made such examination or investigation as is necessary to enable
him to express an informed opinion with respect to the subject matter referred
to in the instrument to which his signature is affixed; (iv) a statement of the
assumptions upon which such certificate or opinion is based, and that such
assumptions are reasonable; and (v) a statement as to whether, in the opinion of
such Person, such provision has been complied with.
Any such certificate or opinion made or given by an officer of the
Authority or the Borrower may be based, insofar as it relates to legal or
accounting matters, upon a certificate or opinion of or representation by
counsel or an Accountant, unless such officer knows, or in the exercise of
reasonable care should have known, that the certificate, opinion or
representation with respect to the matters upon which such certificate or
statement may be based, as aforesaid, is erroneous. Any such certificate or
opinion made or given by counsel or an Accountant may be based, insofar as it
relates to factual matters (with respect to which information is in the
possession of the Authority or the Borrower, as the case may be) upon a
certificate or opinion of or representation by an officer of the Authority or
the Borrower, unless such counsel or Accountant knows that the certificate or
opinion or representation with respect to the matter upon which such certificate
or opinion or representation may be based, as aforesaid, is erroneous. The same
officer of the Authority or the Borrower, or the same counsel or Accountant, as
the case may be, need not certify to all of the matters required to be certified
under any provision of this Agreement, but different officers, counsel or
Accountants may certify to different matters, respectively.
Section 1.03. Interpretation.
(a) Unless the context otherwise indicates, words expressed in the
singular shall include the plural and vice versa and the use of the neuter,
masculine or feminine gender is for convenience only and shall be deemed to mean
and include the neuter, masculine or feminine gender, as appropriate.
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(b) Headings of articles and sections herein and the table of contents
hereof are solely for convenience of reference, do not constitute a part hereof
and shall not affect the meaning, construction or effect hereof.
(c) All references herein to "Articles," "Sections" and other
subdivisions are to the corresponding Articles, Sections or subdivisions of this
Agreement; the words "herein," "hereof," "hereby," "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
Article, Section or subdivision hereof.
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ARTICLE II
THE LOAN; USE OF PROCEEDS
Section 2.01. Loan of Funds to the Borrower. The Authority hereby
agrees that simultaneously with the execution and delivery of this Agreement, it
will loan to the Borrower, upon the terms and conditions specified herein and in
the Indenture, the proceeds of the sale of the Bonds (the "Loan"), and the
Borrower agrees to receive such Loan from the Authority for the purposes
provided herein and in the Indenture.
Section 2.02. Use of Proceeds. The proceeds of the Bonds shall be
deposited with the Trustee and applied as provided in the Indenture and in this
Agreement to finance the Project and to pay costs of issuance of the Bonds.
Section 2.03. Excess Proceeds. If after completion of the Project at
least ninety-five percent (95%) of the sum of (i) the actual amount of the
proceeds received by the Authority from the sale of the Bonds less amounts
expended for issuance expenses and (ii) any investment earnings on moneys in the
Project Fund, have not been used, any amount (exclusive of amounts retained by
the Trustee in the Project Fund for payment of Costs of the Project not then due
and payable) remaining in the Project Fund shall be segregated by the Trustee in
a separate subaccount of the Debt Service Fund and used by the Trustee in
accordance with the terms of Section 5.08 of the Indenture.
Section 2.04. Covenants for Benefit of Bondholders. This Agreement is
executed in part to induce the purchase by others of the Bonds. Accordingly, all
covenants and agreements on the part of the Borrower and the Authority, as set
forth in this Agreement, are hereby declared to be for the benefit of the Owners
from time to time of the Bonds.
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ARTICLE III
PAYMENT PROVISIONS
Section 3.01. Loan Payments.
(a) The Borrower hereby agrees to pay duly and punctually (i) the
principal and interest due and payable on the Bonds and (ii) any other amounts
due and payable by the Borrower under this Agreement. All loan payments due
under this Agreement shall be paid to the Trustee directly by the Borrower as
provided in Section 3.03 hereof. Any other amounts required to be paid under
this Agreement shall be paid by the Borrower to the party entitled to receive
same hereunder and in the manner provided for herein. Loan payments shall be
made by the Borrower with the Borrower's funds. It is the intention of the
Authority and the Borrower that, notwithstanding any other provision of this
Agreement, the Authority shall receive funds from the Borrower under this
Agreement at such times and in such amounts as will enable the Authority to meet
all of its obligations under the Bonds and the Indenture, including any such
obligations surviving the payment of the Bonds and the defeasance of the
Indenture and including amounts due upon the redemption or acceleration of the
maturity of the Bonds. The loan payments required by this Section 3.01(a) shall
be reduced after payment of the principal and interest on the Bonds in
accordance with the terms of the Indenture has been made.
(b) All loan payments and other sums due and payable to the Authority
or the Trustee under this Agreement shall be absolutely net to the Authority or
the Trustee, as applicable, free of any taxes, costs, liabilities or other
deductions whatsoever, so that this Agreement shall yield all amounts due
hereunder net to the Authority or the Trustee throughout the term hereof.
Section 3.02. Restoration of Debt Service Reserve Fund; Payments into
Operating Expense Reserve Fund and Capital and Maintenance Fund .
(a) Without limiting the generality of Sections 3.01 and 3.04 hereof,
the Borrower agrees that if any additional amounts become payable by the
Authority to the Owners of the Bonds or the Trustee pursuant to the terms
thereof or the terms of the Indenture, then additional amounts shall be due and
payable by the Borrower to the Trustee, as the assignee of the Authority,
hereunder equal to any additional amounts that may be so payable by the
Authority, before or after payment of principal on the Bonds and the Loan
hereunder, all of which amounts shall be paid by the Borrower on the date that
the comparable amounts are due by the Authority to the Trustee under the Bonds
or the Indenture. The Borrower expressly acknowledges receipt of a copy of the
Indenture and assumes all of the Borrower's obligations thereunder and agrees to
pay all amounts and perform all obligations of the Borrower under the Indenture
so that at all times there shall be no default thereunder.
(b) In the event of any withdrawal from the Debt Service Reserve Fund
pursuant to Section 5.12 of the Indenture to cure any deficiency in the Debt
Service Fund or in the event that the Trustee notifies the Borrower of a decline
in the value of the securities in such Fund, the Borrower shall pay, or cause to
be paid, over to the Trustee, the full amount of such withdrawal or decline in
value for deposit in the Debt Service Reserve Fund, in no more than six (6)
equal, consecutive,
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installments, each payable on the first Business Day of the month commencing
with the month immediately succeeding the month in which the Trustee notifies
the Borrower of the withdrawal or decline in value.
(c) The Borrower shall make, or cause to be made, to the Trustee, the
monthly payments for deposit in the Operating Expense Reserve Fund as described
in Section 5.15 of the Indenture; provided that any failure to make a deposit in
the Operating Expense Reserve Fund because of insufficient Gross Revenues shall
not be an Event of Default hereunder.
(d) The Borrower shall make, or cause to be made, to the Trustee, the
monthly payments for deposit in the Capital and Maintenance Fund as described in
Section 5.16 of the Indenture; provided that any failure to make the deposit
into the Capital and Maintenance Fund because of insufficient Gross Revenues
shall not be an Event of Default hereunder.
(e) Any payments made from the Revenue Fund pursuant to Section 5.17 of
the Indenture shall be considered payment made in compliance with subsections
(b), (c) and (d) of this Section.
Section 3.03. Time of Loan Payments.
(a) The Borrower shall pay to the Trustee, as assignee of the
Authority, for deposit in the Debt Service Fund on any Interest Payment Date or
any other date that any payment of interest or principal is required to be made
in respect of the Bonds pursuant to the Indenture, until the principal of and
interest on the Bonds shall have been fully paid or provision for the payment
thereof shall have been made in accordance with the Indenture, in immediately
available funds, a sum which, together with any moneys available for such
payment in the Debt Service Fund, will enable the Trustee to pay the amount
payable on such date as principal of (whether at maturity or upon redemption or
acceleration or otherwise), and interest on the Bonds as provided in the
Indenture.
It is understood and agreed that all payments payable by the Borrower
under this subsection 3.03 (a) are assigned by the Authority to the Trustee for
the benefit of the Owners of the Bonds. The Borrower assents to such assignment.
(b) Additionally, from time to time, the Borrower shall make such
payments as shall be necessary to make up any deficiency in or to fully fund any
of the funds established under the Indenture.
(c) No later than April 1, 2000, the Borrower will deposit with the
Trustee an additional $65,895 for deposit in the Lease Reserve Fund.
Section 3.04. Additional Payments; Taxes. As Additional Payments
hereunder, the Borrower, during the term of this Agreement, shall pay or cause
to be paid the following:
(a) To the public officers charged with the collection thereof,
promptly as the same become due, all taxes (or contributions or payments in lieu
thereof), including but not limited to
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income, profits or property taxes, which may now or hereafter be imposed by the
United States of America, any state or municipality or any political subdivision
or subdivisions thereof, and all assessments for public improvements or other
assessments, levies, license fees, charges for publicly supplied water or sewer
services, excises, franchises, imposts and charges, general and special,
ordinary and extraordinary (including interest, penalties and all costs
resulting from delayed payment of any of the foregoing) of whatever name, nature
and kind and whether or not now within the contemplation of the parties hereto
and which are now or may hereafter be levied, assessed, charged or imposed or
which are or may become a lien upon the payments due under this Agreement, or
upon the Borrower or the Authority, provided, however, that the Borrower shall
not be required to pay or discharge or cause to be paid or discharged any tax,
assessment, lien or other matter hereunder so long as the validity thereof is
being contested in good faith and by appropriate legal proceedings diligently
pursued.
(b) All reasonable fees, charges and expenses of the Trustee and the
Underwriter, as and when the same become due and payable.
(c) The reasonable fees and expenses of such Accountants, consultants,
attorneys and other experts as may be engaged by the Authority or the Trustee to
prepare audits, financial statements, reports, opinions or provide such other
services required under this Agreement or the Indenture.
(d) The reasonable fees and expenses of the Authority in connection
with the preparation, execution, delivery, recording and filing of this
Agreement, the Bonds, the Indenture and the other Bond Documents, and any and
all other expenses incurred in connection with the authorization, issuance, sale
and delivery of the Bonds or incurred by the Authority in connection with any
litigation which may at any time be instituted involving this Agreement, the
Bonds, the Indenture or any of the other Bond Documents contemplated thereby, or
incurred in connection with the supervision or inspection of the Project, or
otherwise in connection with this Agreement, the Indenture, the Bonds or any of
the other Bond Documents, instruments or agreements in connection therewith
including, without limitation, the Authority's annual fees and expenses and the
Trustee's annual fees and expenses under the Indenture, this Agreement and the
other Bond Documents, which fees and expenses may include, but shall not be
limited to, reasonable attorneys' fees and all costs of marketing, collecting
payment on and redeeming the Bonds thereunder, and any costs and expenses of any
Owner of the Bonds in connection with any approval, consent or waiver under, or
modification of, any such document.
(e) The Borrower further agrees to pay all costs of maintenance and
repair, insurance premiums and other costs and expenses concerning or in any way
related to ownership, maintenance and use of the Project, or any part thereof,
during the term of this Agreement or any renewal thereof.
Such Additional Payments shall be billed to the Borrower by the
appropriate party, together with a statement certifying that the amount billed
has been paid or incurred and attaching reasonable supporting documentation
indicating that the amount billed has been paid or incurred for one or more of
the above items. After such a demand, amounts so billed shall be paid by the
Borrower within thirty (30) days after receipt of the bill by the Borrower.
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Section 3.05. Acceleration of Payment to Redeem Bonds. Whenever the
Bonds are subject to optional redemption or extraordinary optional redemption
pursuant to the Indenture and the provisions hereof, the Authority will, upon
request of the Borrower, direct the Trustee to call the same for redemption as
provided in the Indenture. Whenever any Bond is subject to mandatory redemption
pursuant to the Indenture, the Borrower will cooperate with the Authority and
the Trustee in effecting such redemption. In the event of any mandatory,
optional or extraordinary optional redemption of the Bonds, the Borrower will
pay or cause to be paid to the Trustee an amount equal to the applicable
redemption price as a prepayment of that portion of the loan payment
corresponding to the Bonds to be redeemed, together with interest accrued to the
date of redemption, and will also pay all reasonable fees and expenses of the
Authority and the Trustee arising with respect to such redemption or otherwise
due and owing hereunder or under the Indenture at such times and in such amounts
as are required to effect the mandatory, optional or extraordinary optional
redemption of the Bonds under the terms of the Indenture.
Section 3.06. No Defense or Set-Off. The obligations of the Borrower to
make loan payments shall be absolute and unconditional without any defense or
set-off for any reason, including, without limitation, any acts or circumstances
that may constitute failure of consideration, invalidity or unenforceability of
the Bonds, commercial frustration of purpose or failure of the Authority to
perform and observe any agreement, whether express or implied, or any duty,
liability or obligation arising out of or connected with this Agreement, it
being the intention of the parties that the payments required of the Borrower
hereunder will be paid in full when due without any delay or diminution
whatsoever.
Section 3.07. Termination Upon Payment or Defeasance of Bonds. When the
interest on and the principal or redemption price (as the case may be) of all
Bonds issued under the Indenture, together with all other amounts due and
payable by the Borrower hereunder, shall have been paid, or there shall have
been deposited with the Trustee an amount evidenced by moneys or Government
Obligations, the principal of and interest on which, when due, without
reinvestment, will provide sufficient moneys to pay fully the principal or
redemption price (as the case may be) of and all accrued interest on all Bonds
then Outstanding, as well as all other sums payable or to become payable by the
Borrower under this Agreement, as evidenced by a verification report from an
Accountant, delivered to the Trustee, satisfactory in form and content to the
Trustee, no further loan payments shall be payable hereunder and this Agreement
shall thereupon be terminated. The Authority shall cause the Trustee to pay over
to the Borrower any additional moneys then remaining in any Fund (other than the
Rebate Fund) established under the Indenture (and which will not be required to
pay any amounts as set forth in the preceding sentence), and shall pay over to
the Borrower any additional moneys which may be paid to the Authority by the
Trustee.
Section 3.08. Assignment of Authority's Rights.
(a) As security for the payment of the Bonds, the Authority will assign
to the Trustee all of the Authority's rights under this Agreement, the Mortgage,
the Note and the Guaranty. The Authority expressly reserves from the foregoing
assignments to the Trustee the following rights (collectively, the "Reserved
Rights"):
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(i) the Authority's right to indemnification contained in
Section 3.10 and 7.05(e) hereof;
(ii) the Authority's right to payment of its fees and expenses
contained in Sections 3.04, 3.05, 3.10, 7.05(e), 7.15, 8.03
and 10.02 hereof;
(iii) the Authority's right to enforce the Borrower's
covenants and obligations set forth in Sections 3.09, 3.11,
4.03, 4.04, 4.07, 6.01, 7.03, 7.04, 7.05, 7.10, 7.11, 7.12,
7.13, 7.14 and 10.16 hereof and the remedies set forth in
Sections 8.02, 8.03 and 8.04 hereof and the rights set forth
in Section 10.15 hereof;
(iv) the Authority's right to grant or withhold its consent to
assignments, sales, conveyances and dispositions; and
(v) the Authority's right to receive notices set forth in
Section 4.06 hereof.
(b) The Borrower: (i) consents to such assignments and accepts notice
thereof with the same legal effect as though such acceptances were embodied in
separate instruments, separately executed after execution of such assignments;
(ii) agrees to pay directly to the Trustee, all payments payable hereunder for
application to amounts then due and payable or to become due and payable under
the Indenture, such payments to be paid by the Borrower to the Trustee without
any defense, set-off or counterclaim arising out of any default on the part of
the Authority under this Agreement or any transaction between the Borrower and
the Authority or the Borrower and the Trustee; and (iii) agrees that the Trustee
may exercise any and all rights and pursue any and all remedies granted the
Authority hereunder.
Section 3.09. Assignment by Borrower. This Agreement may be assigned in
whole or in part by the Borrower without the necessity of obtaining the consent
of the Trustee or the Owners of the Bonds; provided, however, that any such
assignment shall require the prior written consent of the Authority; and further
provided that no assignment pursuant to this Section shall be made otherwise
than in accordance with the Act and the Code. The Borrower shall, within thirty
(30) days after execution thereof, furnish or cause to be furnished to the
Authority and the Trustee a true and complete copy of each such assignment
together with any instrument of assumption.
Section 3.10. Indemnity Against Claims.
(a) The Borrower agrees to and does hereby indemnify and hold harmless
the Authority, the State, the Underwriter and any person who "controls" the
Authority, the State or the Underwriter (within the meaning of Section 15 of the
Securities Act of 1933, as amended), and any member, officer, director,
official, employee, and attorney of the Authority, the State or the Underwriter
(collectively called the "Indemnified Parties") against any and all losses,
claims, damages or liabilities (including all costs, expenses and reasonable
counsel fees incurred in investigating or defending such claim) suffered by any
of the Indemnified Parties and caused by,
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relating to, arising out of, resulting from, or in any way connected with (i)
the condition, use, possession, conduct, management, planning, design,
acquisition, construction, installation, financing or sale of the Project or any
part thereof, including the payment of any rebate amount to the federal
government; or (ii) any untrue or misleading statement of a material fact
contained in information provided by the Borrower with respect to the
transactions contemplated hereby; or (iii) any omission of a material fact
necessary to be stated therein in order to make such statement not misleading or
incomplete. In case any action shall be brought against one or more of the
Indemnified Parties based upon any of the above and in respect to which
indemnity may be sought against the Borrower, such Indemnified Party shall
promptly notify the Borrower in writing, and the Borrower shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnified Party, the payment of all costs and expenses and the right to
negotiate and consent to settlement. Any one or more of the Indemnified Parties
shall have the right to employ separate counsel at the expense of such
Indemnified Parties in any such action and to participate in the defense thereof
and such representation shall be at the expense of the Borrower if the
Indemnified Party has separate or additional defenses available to it. The
Borrower shall not be liable for any settlement of any such action effected
without Borrower's consent, but if settled with the consent of the Borrower, or
if there is a final judgment for the claimant on any such action, the Borrower
agrees to indemnify and hold harmless the Indemnified Parties from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
anything in this Agreement to the contrary which may limit recourse to the
Borrower or may otherwise purport to limit the Borrower's liability, the
provisions of this Section shall control the Borrower's obligations and shall
survive repayment of the Bonds.
(b) The Borrower hereby covenants and agrees that it will indemnify the
Trustee against any and all claims arising out of the Trustee's exercise and
performance of powers and duties granted unto it by the Indenture and hereunder,
and not resulting from the Trustee's willful misconduct or gross negligence.
(c) The Borrower will indemnify, hold harmless and defend the
Authority, the State, the Underwriter and their officers, members, directors,
officials, attorneys and employees of each of them against all losses, costs,
damages, expenses, suits, judgments, actions and liabilities of whatever nature
including, specifically, any liability under any state or federal securities
laws (including but not limited to reasonable attorneys' fees, litigation and
court costs, amounts paid in settlement and amounts paid to discharge judgments)
directly or indirectly resulting from or arising out of or related to: any
material misstatements, misrepresentations or omissions with respect to the
Borrower, this Agreement, the Bonds, the Indenture or any other documents or
instruments delivered at or in connection with the issuance of the Bonds on the
Closing Date (including any statements or representations made in connection
with the offer or sale thereof) made or given to the Authority, the Trustee, the
Underwriter or purchasers of any of the Bonds, by the Borrower or any of its
officers, agents or employees, including, but not limited to, misstatements,
misrepresentations or omissions of facts, financial information or corporate
affairs. The Borrower also will pay and discharge and indemnify and hold
harmless the Authority and the Trustee from (x) any lien or charge upon payments
by the Borrower to the Authority or the Trustee under this Agreement and (y) any
taxes (other than income taxes imposed against the Authority or the Trustee)
relating to the Project. If any such claim is asserted, or any such lien or
charge upon payments, or any such taxes, or other charges are
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sought to be imposed, the Authority or the Trustee, as the case may be, will
give prompt notice to the Borrower, and the Borrower will have the sole right
and duty to assume, and will assume, the defense thereof, with full power to
litigate, compromise or settle the same in its sole discretion.
(d) If the indemnification provided heretofore is for any reason
determined to be unavailable to the Authority or the Trustee with respect to any
such loss, claim, demand or liability, including expenses in connection
therewith, the Authority or the Trustee as appropriate, shall be entitled as a
matter of right to contribution by the Borrower. The amount of such contribution
shall be in such proportion as is appropriate to reflect relative culpability of
the parties.
Section 3.11. Authority is Conduit Issuer; Borrower is Real Party in
Interest. The Borrower hereby expressly acknowledges that the Authority is a
conduit issuer and that all of the right, title and interest of the Authority in
and to this Agreement are to be assigned to the Trustee (except for the Reserved
Rights of the Authority), naming the Trustee, as applicable, its true and lawful
attorney and as its assignee to enforce the terms and conditions of this
Agreement. Notwithstanding any other provision contained herein, the Borrower
hereby expressly agrees, acknowledges and covenants that it shall duly and
punctually perform or cause to be performed each and every duty and obligation
of the Authority under and pursuant to the Indenture.
Section 3.12. Operating Account.
(a) The Borrower shall establish an Operating Account to be held by it
outside of the lien of the Indenture. The Borrower agrees to collect or cause to
be collected with all due dispatch, all Gross Revenues, including amounts
payable under this Agreement and the Note.
(b) So long as (i) no Event of Default has occurred and is continuing,
(ii) the Debt Service Reserve Fund has not been drawn upon or, if it has been
drawn upon, such amounts have been replenished, and (iii) the Borrower is in
compliance with all of its Financial Covenants, or is out of compliance for no
more than one calendar quarter, the Borrower may deposit the Gross Revenues in
the Operating Account. The Borrower shall pay from the Operating Account all
Operating Expenses pursuant to the Operating Budget filed with the Trustee or a
Certificate of the Borrower showing any deviation of more than 10% from such
Operating Budget and, no later than the 25th day of each month, will remit to
the Trustee monies sufficient to permit the Trustee to make the payments or
deposits set forth below in the following order of priority:
(i) Beginning in July, 1999, to the Interest Account of the Debt
Service Fund, an amount equal to one-fifth of the interest
payment coming due on December 1, 1999, and beginning in
December, 1999, one-sixth of the interest payment coming due
on the Bonds on the next Interest Payment Date;
(ii) Beginning in July, 1999 to the Principal Account of the Debt
Service Fund, an amount equal to one-eleventh of the
principal payment coming due on the Bonds on June 1, 2000
and beginning in June, 2000, an amount equal to one-
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twelfth of the principal payment coming due on the Bonds on
the next principal or mandatory sinking fund payment date;
(iii) Commencing on the first day of the month next following the
month in which there shall have occurred a withdrawal from
or decline in the value of the Debt Service Reserve Fund, to
the Debt Service Reserve Fund, an amount equal to one sixth
of the deficiency in such Fund;
(iv) to the Operating Expense Reserve Fund, commencing on June 1,
2000, an amount equal to $12,500 per month until such time
as the amount on deposit in such Fund equals the Operating
Expense Reserve Requirement;
(v) to the Lease Reserve Fund, commencing the month next
following the month in which there shall have occurred any
transfer from, or decline in value of, the Lease Reserve
Fund, an amount equal to the amount of such transfer or
decline in value;
(vi) to the Capital and Maintenance Fund, commencing on June 1,
2000, an amount equal to $5,000 per month until such time as
the amount on deposit in such Fund equals the Capital and
Maintenance Reserve Requirement;
(vii) to the Debt Service Reserve Fund, commencing the month next
following the month in which there shall have occurred any
transfer from, or decline in value of the Debt Service
Reserve Fund, an amount equal to the lesser of (A) cash in
excess of the amount required to satisfy the Liquidity
Covenant remaining after the payment described in clauses
(i) through (vi) above ("Available Cash") shall have been
made or (B) the amount by which the Debt Service Reserve
Fund Requirement exceeds the amount then on deposit in the
Debt Service Reserve Fund..
(c) In the event that (i) an Event of Default shall have occurred and
be continuing or (ii) the Debt Service Reserve Fund shall have been drawn upon
and such amounts have not been replaced as provided in Section 5.12 of the
Indenture or (iii) the Borrower shall have failed to meet any of the Financial
Covenants for two consecutive fiscal quarters, the Borrower shall be required to
transfer, on a daily basis, the maximum amount of money permitted under the
Senior Credit Agreement to the Trustee for deposit in the Revenue Fund.
(d) The Borrower may resume the use of the Operating Account only after
(i) no Event of Default shall have occurred and be continuing, (ii) the moneys
on deposit in the Debt Service Reserve Fund are equal to the Debt Service
Reserve Fund Requirement and (iii) the Borrower shall have complied with all
Financial Covenants for two consecutive fiscal quarters.
(e) The failure of the Borrower to make the deposits required by
clauses (iv), (v) and (vi) of subsection (b) above shall not constitute an Event
of Default hereunder if Gross Revenues are insufficient therefor.
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(f) The failure of the Borrower to make the deposits required by clause
(vii) of subsection (b) above shall not constitute an Event of Default hereunder
if Available Cash is insufficient therefor.
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ARTICLE IV
BORROWER OBLIGATIONS
Section 4.01. General Obligation of the Borrower. This Agreement
constitutes a general obligation of the Borrower and the full faith and credit
of the Borrower is pledged to the payment of all amounts due hereunder.
Section 4.02. [Reserved].
Section 4.03. Maintenance and Operation of the Project.
(a) The Borrower will at all times preserve and protect the Project in
good repair, working order and safe condition, and from time to time will make,
or will cause to be made, all necessary repairs, renewals, replacements,
betterments and improvements thereto including those required after a casualty
loss. The Borrower shall pay all operating costs, utility charges and other
costs and expenses arising out of ownership, possession, use or operation of the
Project. The Authority shall have no obligation and makes no warranties
respecting the condition or operation of the Project.
(b) The Borrower agrees to make timely payment for any improvements to
the Project lawfully done or lawfully ordered to be done by any municipal, State
or federal authority and to comply in all material respects at its own cost and
expense with all lawful and enforceable notices received (whether by the
Authority or the Borrower) from public authorities from and after the date
hereof that affect the Project and the use and operation thereof, other than
those improvements, orders and notices, the amount, validity or application of
which is at the time being contested, in whole or in part, in good faith by
appropriate proceedings promptly initiated and diligently conducted.
(c) The Borrower covenants and agrees that the Project shall be used
only for the purpose of industrial or commercial activities or activities
accessory thereto, and only as an authorized project under the Act, until
expiration or earlier termination of this Agreement.
(d) The Borrower covenants and agrees that it shall not relocate the
Project or any part thereof out of the State.
(e) The Borrower will not use as a basis for contesting any assessment
or levy of any tax the financing under this Agreement or the issuance of the
Bonds by the Authority and, if any administrative body or court of competent
jurisdiction shall hold for any reason that the Project is exempt from the
transaction by reason of the financing under this Agreement or issuance of the
Bonds by the Authority or other Authority action in respect thereto, the
Borrower covenants to make payments in lieu of all such taxes in an amount equal
to such taxes and, if applicable, interest and penalties.
(f) The Borrower agrees that it shall not discriminate or permit any
discrimination in the use of the Project against any person on the grounds of
race, color, religion, age, gender or
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national origin in any manner prohibited by the laws of the United States or the
State, and shall provide the State with all information required by law
concerning employment practices and procedures.
Section 4.04. Maintenance of Existence.
(a) The Borrower agrees that it will maintain its status as an entity
authorized to conduct business in the State, will not dissolve or consolidate
with or merge into another entity, and will not sell, assign, transfer or
otherwise dispose of substantially all of its assets without the consent of the
Authority.
(b) Notwithstanding subsection (a) of this Section 4.04, the Borrower
may, merge with or into or consolidate with another entity, and the Project or
this Agreement may be transferred without violating this Section, provided (i)
in the event that the Borrower is not the surviving entity, the Borrower causes
the proposed surviving, resulting or transferee entity to furnish the Authority
with a "Change of Ownership Information Form" or similar form then in use by the
Authority; (ii) the net worth of the surviving, resulting or transferee entity
following the transfer is substantially equal to or greater than the net worth
of the Borrower immediately preceding the merger, consolidation or transfer as
certified by the independent auditors of the Borrower; (iii) any litigation or
investigations known to the Borrower after due inquiry in which the surviving,
resulting or transferee entity or, where applicable, its officers and directors
are involved at the time of such transfer, and any court, administrative or
other orders to which the transferee is or, where applicable, its officers and
directors are, subject, relate to matters arising in the ordinary course of
business; (iv) the surviving, resulting or transferee entity assumes in writing
the obligations of the Borrower under this Agreement, the Mortgage, the Note and
the Bonds; (v) after the merger, consolidation or transfer, the Project shall
continue to be an authorized project under the Act; and (vi) the merger,
consolidation of transfer does not cause a reissuance or affect the tax-exempt
status of the Series 1999A Bonds pursuant to an opinion of Bond Counsel.
(c) Subject to the consent of the Authority, but without any other
consent, the Borrower may sell up to 49% of its outstanding capital stock to the
public or to a strategic partner; provided, however, that the Borrower may not
pledge such stock as collateral.
Section 4.05. Compliance with Laws. With respect to the Project and any
additions, alterations or improvements thereto, the Borrower will at all times
comply in all material respects with all applicable requirements of federal,
State and local laws and with all applicable lawful requirements of any agency,
board, or commission created under laws of the State or of any other duly
constituted public authority, and will use and permit the use of the Project
only for such purposes as are lawful under the Act; provided, however, that the
Borrower shall be deemed in compliance with this Section 4.05 so long as it is
contesting in good faith any such requirement by appropriate legal proceedings.
Section 4.06. Notice of Bankruptcy Case Commencement. The Borrower
covenants and agrees that it shall immediately notify the Authority, the Trustee
and the Underwriter of the commencement of any case by or against it under the
Bankruptcy Code.
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Section 4.07. Project Users. Prior to leasing, subleasing or consenting
to the subleasing or assignment of any lease of all or any part of the Project
during the term of this Agreement, the Borrower shall cause a Project Occupant
Information Form to be submitted to the Authority by every prospective lessee,
sublessee or lease assignee of the Project. The Borrower shall not permit any
such leasing, subleasing or assigning of leases that would impair the
excludability of interest paid on the Series 1999A Bonds from the gross income
of the owners thereof for purposes of federal taxation, or that would impair the
ability of the Borrower to operate the Project or cause the Project not to be
operated as an authorized project under the Act.
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ARTICLE V
THE PROJECT
Section 5.01. Acquisition, Construction and Installation of the
Project. The Borrower covenants that it will acquire, construct, equip and
improve the Project with due diligence substantially in accordance with the
Plans and Specifications. The Borrower shall (a) pay when due all fees, costs
and expenses incurred in connection with the foregoing from funds made available
therefor in accordance with this Agreement or otherwise, unless any such fees,
costs or expenses are being contested by the Borrower in good faith and by
appropriate proceedings, (b) ask, demand, sue for, levy, recover and receive all
those sums of money, debts and other demands whatsoever which may be due, owing
and payable under the terms of any contract, order, receipt, writing and
instruction in connection with the acquisition, construction and installation of
the Project, and (c) enforce the provisions of any contract, agreement,
obligation, bond or other performance security with respect thereto if necessary
to complete the Project with due diligence.
Section 5.02. Plans and Specifications. The Borrower may revise the
Plans and Specifications from time to time, provided that no revision shall be
made which would change the purposes of the Project to other than purposes
permitted by the Act.
Section 5.03. Issuance of the Bonds; Application of Proceeds. To
provide funds to make the Loan for purposes of assisting the Borrower in the
financing of the Project, the Authority will issue, sell and deliver the Bonds
upon the order of the Underwriter as provided in the Purchase Agreement. The
Bonds will be issued pursuant to the Indenture in the aggregate principal
amount, will bear interest, will mature and will be subject to redemption as set
forth therein. The Borrower hereby approves the terms and conditions of the
Indenture and the Bonds, and the terms and conditions under which the Bonds will
be issued, sold and delivered.
The proceeds from the sale of the Bonds shall be loaned to the Borrower
and paid over to the Trustee for the benefit of the Borrower and the Owners of
the Bonds and deposited as provided in Section 3.03 of the Indenture. Pending
disbursement pursuant to Section 5.04 hereof, the proceeds deposited in the
Project Fund, together with any investment earnings thereon, shall constitute a
part of the Revenues assigned by the Authority to the payment of Debt Service
Requirements as provided in the Indenture.
Section 5.04. Disbursements from the Project Fund.
(a) Subject to the provisions below and to the representations,
warranties and covenants contained herein, disbursements from the Project Fund
shall be made only to pay (or to reimburse the Borrower for payment of) the
following costs of the Project:
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(i) Costs incurred directly or indirectly for or in connection
with the acquisition, construction or installation of the Project, including
costs incurred with respect to the Project for preliminary planning and studies;
architectural, legal, engineering, accounting, consulting, supervisory and other
services; labor, services and materials; and recording of documents and title
work;
(ii) Costs incurred directly or indirectly in seeking to
enforce any remedy against any contractor or subcontractor in respect of any
actual or claimed default under any contract relating to the Project;
(iii) Financial, legal, accounting, printing and engraving
fees, charges and expenses, and all other fees, charges and expenses incurred in
connection with the authorization, sale, issuance and delivery of the Bonds,
including, without limitation, the fees and expenses of the Authority and Bond
Counsel, the fees and expenses of the Trustee and the fees and expenses of the
Underwriter and its counsel; and
(iv) Any other incidental and necessary costs, expenses, fees
and charges relating to the acquisition, construction or installation of the
Project.
(b) Any disbursements from the Project Fund described above shall be
made by the Trustee only upon the written order of the Authorized
Representative. Each such written order shall be in substantially the form of
the requisition attached as Exhibit D to the Indenture and shall be
consecutively numbered and accompanied by invoices or other appropriate
documentation supporting the payments or reimbursements requested, including
those set forth in clauses (i) through (iv) below. Such order shall contain a
certification of the Borrower to the effect that the cost to be paid or
reimbursed (x) is a proper charge against the Project Fund and (y) has not
formed the basis of any previous requisition. In case any contract provides for
the retention by the Borrower of a portion of the contract price, there shall be
paid from the Project Fund only the net amount remaining after deduction of any
such portion and, only when that retained amount is due and payable, may it be
paid from the Project Fund.
(i) Prior to the first disbursement from the Project Fund,
either (A) an executed Contractor's Certificate and Agreement or (B) a Borrower
Certificate stating that, for purposes of the prevailing wage regulation and the
Affirmative Action Program, none of the moneys disbursed at any time from the
Project Fund will be used to pay or reimburse a payment for work done in
performance of any Construction Contract unless prior thereto there shall be
submitted to the Trustee an executed Contractor's Certificate and Agreement.
Nevertheless, prior to the initial disbursement from the Project Fund for
payment of any Construction Contract, if not theretofore furnished, a
Contractor's Certificate and Agreement shall be submitted;
(ii) For all disbursements from the Project Fund which will be
used to pay or reimburse a payment for work done in the performance of any
Construction Contract, the Trustee shall be provided with a requisition
evidencing the written approval of the payment by an Independent architect,
engineer or contractor and delivery to the Trustee of a rundown to the title
report showing no intervening liens or new matters of record through the date of
the requisition
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other than Permitted Encumbrances and a mechanic's lien waiver executed by the
contractor or subcontractor that performed such work;
(iii) Such additional documents, including, but not limited
to, paid invoices, bills, receipts, affidavits, certificates and opinions as the
Authority or the Trustee may reasonably require.
(c) For purposes of the Affirmative Action Program, there shall be
retained in the Project Fund an amount equal to ten per centum (10%) of each sum
requisitioned for payment or reimbursement for payment of any Construction
Contract (a "holdback"); provided, however, if any such requisitioned sum is for
reimbursement of a payment by the Borrower, which payment itself was for only
ninety per centum (90%) of the payment requested by the contractor or
subcontractor pursuant to such Construction Contract, then such requisitioned
sum may be reimbursed without regard to the aforementioned holdback, but the
remaining ten per centum (10%), when requisitioned by the Borrower, shall only
be disbursed upon the holdback conditions hereinafter set forth. Said holdback
shall be disbursed from time to time from the Project Fund upon compliance with
the preceding terms and conditions of this Section and (w) the execution and
filing with the Authority of the Contractor's Completion Certificate; (x) the
execution and filing with the Authority and the Trustee of the Borrower's
Completion Certificate; (y) receipt by the Borrower and the Trustee of a written
notice issued by the Authority's Office of Affirmative Action that the
contractor has complied with the requirements of the Affirmative Action Program;
and (z) a Borrower Certificate delivered to the Trustee certifying compliance
with the conditions stated in clauses (w) through (y) hereinabove.
(d) Any moneys in the Project Fund remaining after the Completion Date
and payment, or provision for payment, of the costs of financing the Project
described above, at the direction of the Authorized Representative, promptly
shall be:
(i) used to acquire, construct, equip and install such
additional real or personal property in connection with the Project as is
designated by the Authorized Representative, the acquisition, construction,
equipping and installation of which will be permitted under the Act;
(ii) used to redeem Bonds in accordance with the terms of the
Indenture;
(iii) used for the purchase of Bonds in the open market for
the purpose of cancellation; or
(iv) used to accomplish a combination of the foregoing as is
provided in that direction.
(e) In the event that all of the Bonds are either redeemed or
accelerated pursuant to the terms of the Indenture, any remaining funds in the
Project Fund shall be transferred to the Debt Service Fund.
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Section 5.05. Borrower Required to Pay Costs in Event Project Fund
Insufficient. If moneys in the Project Fund are not sufficient to pay all costs
of the Project, the Borrower, nonetheless, will complete the Project in
accordance with the Plans and Specifications, and shall pay all such additional
costs of the Project from the Borrower's own funds. The Borrower shall not be
entitled to any reimbursement for any such additional costs of the Project from
the Authority, the Trustee or any Owner; nor shall it be entitled to any
abatement, diminution or postponement of its obligation to make the Loan
Payments.
Section 5.06. Completion Date. The Borrower shall notify the Authority
and the Trustee of the Completion Date by a Certificate signed by the Authorized
Representative stating:
(a) the date on which the Project was substantially completed, which
date shall be not later than three years after initial delivery of the Bonds;
(b) that the acquisition, construction and installation of the Project
has been accomplished in such a manner as to conform with all applicable
planning, building, environmental and other similar governmental regulations;
(c) that except as provided in subsection (d) of this Section, all
costs of that acquisition, construction and installation then or theretofore due
and payable have been paid; and
(d) the amounts which the Trustee shall retain in the Project Fund for
the payment of costs of the Project not yet due or for liabilities which the
Borrower is contesting or which otherwise should be retained and the reasons
such amounts should be retained.
The certificate may state that it is given without prejudice to any
rights against third parties which then exist or subsequently may come into
being. The certificate shall be delivered as promptly as practicable after the
occurrence of the events and conditions referred to in subsections (a) through
(c) of this Section.
Section 5.07. Investment of Fund Moneys. At the written or oral request
(promptly confirmed in writing) of the Authorized Representative, any moneys
held as part of the Debt Service Fund (except moneys held in the Debt Service
Fund for purposes of defeasing the Bonds pursuant to Article X of the Indenture)
or the Project Fund shall be invested or reinvested by the Trustee in Investment
Securities.
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ARTICLE VI
INSURANCE; DESTRUCTION, DAMAGE AND EMINENT DOMAIN
Section 6.01. Insurance to be Maintained. The Borrower covenants to
provide and maintain continuously unless otherwise herein provided, at its sole
cost and expense, property insurance, including all improvements, equipment and
personal property, and all other property of an insurable character insured at
all times throughout the term of this Agreement and to maintain a minimum of the
following insurance:
(a) "All-Risk" insurance on the Project. The amount of such insurance
shall be equal to 100% of the "Full Replacement Cost" of the Project and other
property without deduction for depreciation and not less than the aggregate
principal amount of the Note and in an amount sufficient to prevent the Trustee,
the Authority or the Borrower from becoming a co-insurer within the terms of the
applicable policies. Each policy shall contain a "Replacement Cost Endorsement".
(b) Flood Hazard Insurance or evidence that it is not required for the
Project and other property.
(c) Business interruption insurance in the amount of not less than
$900,000, protecting the Borrower and the Trustee, covering the Borrower's
payments due under this Agreement, the salaries and expenses of key personnel
and other minimum operating expenses required for the operation of the Project
during such period or periods.
(d) Boiler and machinery coverage (direct damage and use and occupancy)
on a replacement cost basis in an amount not less than $2,500,000.
(e) Public liability insurance (insuring the interests of the Borrower)
and automobile liability insurance, in an occurrence form, in the minimum amount
of $1,000,000 bodily injury and property damage combined single limit and
aggregate where applicable.
(f) Product liability insurance insuring the Borrower against liability
for death, injury, loss or damage resulting from the use of any of its products
in the minimum amount of $3,000,000 per occurrence and $3,000,000 annual
aggregate.
(g) Excess liability coverage in the amount of at least either straight
excess or umbrella excess, covering excess of paragraphs (e) and (f) to be
maintained in force so that the total coverage available under each of the
aforementioned paragraphs, including this subsection, is not less than
$1,000,000 per occurrence and in the aggregate, where applicable, as excess of
employer's liability, general liability, product liability and automobile
liability coverage.
(h) Worker's compensation and employer's liability insurance meeting
the Borrower's statutory obligations.
(i) Such other insurance on the Project and other property, or any
replacements or substitutions therefor, or additions thereto, and in such
amounts as may be agreed to by the Trustee
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against other insurable hazards or casualties which at the time are commonly
insured against in the case of premises similarly situated, due regard being
given to the height and type of buildings and improvements, their construction,
location, use and occupancy.
Each insurance policy with respect to the Project shall name the
Authority and the Authority's assignee as additional insured "as its interest
may appear". The Authority's assignee shall be named as loss payee on all
property insurance policies respecting the Project. The Borrower shall provide
or cause to be provided to the Authority and the Authority's assignee evidence
of the renewal or cancellation of any insurance coverage respecting the Project.
Section 6.02. Destruction, Damage and Eminent Domain. If the Project
shall be wholly or partially destroyed or damaged by fire or other casualty
covered by insurance, or shall be wholly or partially condemned, taken or
injured by any Person, including any Person possessing the right to exercise the
power of or a power in the nature of eminent domain or shall be transferred to
such a Person by way of a conveyance in lieu of the exercise of such a power by
such a Person, the Borrower covenants that it will take all actions and will do
all things which may be necessary to enable recovery to be made upon such
policies of insurance or on account of such taking, condemnation, conveyance,
damage or injury. The Borrower is authorized, in its own name, as trustee of an
express trust, to demand, collect, sue, settle claims, receipt and release
monies which may be due and payable under policies of insurance covering such
damage or destruction or on account of such condemnation, damage or injury. Any
moneys recovered on policies of insurance required to be maintained hereunder or
as a result of any taking, condemnation, conveyance, damage or injury shall be
deposited in the Project Fund held by the Trustee under the Indenture and shall
be applied in accordance with the provisions of Section 6.04 hereof.
Any appraisement or adjustment of loss or damage and any settlement or
payment therefor, shall be agreed upon by the Borrower and the appropriate
insurer or condemnor or Person, shall be evidenced to the Trustee by the
certificate and approvals set forth in the Indenture. The Trustee may rely
conclusively upon such certificates.
Section 6.03. Notice of Property Loss. After the occurrence of loss or
damage to, or after receipt of notice of condemnation of, the Project, the
Borrower shall within five (5) Business Days thereof notify the Authority and
the Trustee, in writing, of such damage.
Section 6.04. Disposition of Casualty Insurance and Condemnation Award
Proceeds. As long as there is no continuing Event of Default under the terms of
this Agreement, the Borrower may elect, in its discretion, whether to apply the
proceeds of any casualty insurance coverage and/or condemnation awards to the
repair, reconstruction or replacement of damaged, destroyed or injured property
included in the Project or the redemption of Bonds pursuant to the applicable
provisions of the Indenture. Absent timely direction from the Borrower as to the
application of any casualty insurance coverage and/or condemnation awards or if
there shall exist an Event of Default under the terms of this Agreement, the
proceeds thereof shall be applied to the extraordinary redemption of the Bonds
at par plus accrued interest through the date of redemption. For purposes of the
preceding sentence, "timely direction" shall mean thirty (30) days after the
Borrower has agreed, in connection with any damage to or condemnation of the
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Project, upon the settlement or payment with respect to any appraisement or
adjustment of loss or damage, as appropriate.
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ARTICLE VII
COVENANTS OF THE BORROWER
The Borrower makes the following representations and covenants:
Section 7.01. Compliance with Laws. The Borrower covenants that all
actions heretofore and hereafter taken by the Borrower to acquire and carry out
the Project have complied and will comply in all material respects with all
pertinent laws, ordinances, rules, regulations and orders applicable to the
Borrower. The Borrower acknowledges that any review by the Authority or Counsel
to the Authority of any action heretofore or hereafter taken by the Borrower has
been or will be solely for the protection of the Authority. Such reviews shall
not prevent the Authority from enforcing any of the covenants made by the
Borrower.
Section 7.02. Power to Perform Obligations.
(a) The Borrower covenants and represents that it has full power and
legal right to enter into this Agreement and perform its obligations hereunder.
The making and performance of this Agreement by the Borrower have been duly
authorized by all necessary action and will not conflict with or constitute a
breach of or default under its certificate of organization, or any bond,
contract, indenture, agreement or any other instrument by which the Borrower or
any of its properties is or may be bound.
(b) The Borrower is duly qualified to do business in the State, has the
power and authority to own its properties and assets and to carry on its
business as now being conducted.
(c) The execution, delivery and performance by the Borrower of this
Agreement and other instruments required hereunder:
(i) do not and will not in any material respect conflict with
or violate any provision of law, rule or regulation, any order of any
court or other agency of government; and
(ii) do not and will not result in the creation or imposition
of any lien, charge or encumbrance of any nature, other than the liens
created by this Agreement, the Indenture and all documents and
instruments executed in connection herewith or therewith.
Section 7.03. Inspection. The Borrower covenants that the Authority, by
its duly authorized representatives, the Trustee, the Underwriter or any Owner
holding twenty-five percent (25%) or more in principal amount of all Outstanding
Bonds, or any duly authorized representatives of any of the foregoing, at
reasonable times and with reasonable notice, may examine, visit and inspect any
part of the Project and its accounts, books and records, and to supply such
reports and information as the Authority and the Trustee may reasonably request.
Section 7.04. Additional Information. The Borrower agrees, whenever
reasonably requested by the Authority, to provide and certify or cause to be
provided and certified such
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information as is necessary to enable the Authority to make any reports or
supply any information required by the Indenture, law or governmental
regulation.
Section 7.05. Tax-Exemption.
(a) The Borrower covenants and agrees that it will not take any action,
omit to take any action or permit any action to be taken on its behalf, or cause
or permit any circumstances within its control to arise, if such action or
circumstances would cause the interest paid on the Series 1999A Bonds to be
included in the gross income of the Bondholders for purposes of federal income
taxation, provided that the Borrower shall not have violated this covenant if
the interest on the Series 1999A Bonds becomes taxable to a person because the
person is a substantial user of the Project or a related person within the
meaning of Section 147 of the Code. The Borrower further covenants and agrees
that it will not use or permit the use by any Person of any of the funds
provided by the Authority hereunder or any other of its funds, directly or
indirectly, or direct the Trustee to invest any funds held by it under the
Indenture or this Agreement, in such manner as would, or enter into or allow any
Related Person to enter into any arrangement, formal or informal, that would, or
take or omit to take any other action that would, cause any Series 1999A Bond to
be an "arbitrage bond" within the meaning of Section 148(a) of the Code. The
Borrower acknowledges having read Sections 5.13 and 6.06 of the Indenture and
agrees to perform all duties imposed upon it by such Sections and by the Tax
Certificate. Insofar as said Sections, or the Tax Certificate impose duties and
responsibilities on the Borrower, they are specifically incorporated herein by
reference.
(b) The Borrower acknowledges that the Series 1999A Bonds are subject
to a $10,000,000 limitation on the sum of the face amount of the Series 1999A
Bonds, the outstanding amount of certain prior tax-exempt obligations and the
amount of Capital Expenditures made in the Project Municipality during a
six-year period beginning three years before the date of issue of the Series
1999A Bonds and ending three years after the date of issue of the Series 1999A
Bonds (the "Capital Expenditure Limit"). If Capital Expenditures are made that
cause the Capital Expenditure Limit to be exceeded, interest on the Series 1999A
Bonds will be included in gross income of the owners thereof retroactive to the
date the Capital Expenditure Limit is exceeded. The Borrower covenants that it
shall furnish to the Issuer a statement setting forth in reasonable detail all
Capital Expenditures paid or incurred by the Borrower, any other Principal User,
or any Related Person to such persons which are required to be taken into
account in determining the aggregate face amount of such issue pursuant to
Sections 144(a)(2) and (4) of the Code and any regulations implementing those
provisions, (i) within one hundred five (105) days following the close of each
fiscal year of the Borrower occurring within three (3) years after the date of
issuance of the Series 1999A Bonds, (ii) within one hundred five (105) days
following the third anniversary of the date of issuance of the Series 1999A
Bonds, and (iii) within thirty (30) days after the aggregate face amount of the
Series 1999A Bonds, by virtue of Capital Expenditures" paid or incurred exceeds
$9,000,000.
The Borrower further covenants that it will file with the Authority and
the Trustee any statement, supplemental statement or other tax schedule, return
or document which discloses that an event shall have occurred which will or
might cause the loss of the exclusion from gross
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income provided in Section 103(a) of the Code for interest paid in respect of
the Series 1999A Bonds.
(c) If the Borrower, any Principal User of the Project or any Related
Person thereto proposes during the Test Period: (i) to merge or consolidate with
any person, firm or corporation and if such action is to occur, (I) such person,
firm or corporation was, is, or will be a Principal User of facilities located
wholly or partly within the Project Municipality, with respect to which there
were obligations issued prior to, and outstanding on the date of issuance of the
Series 1999A Bonds, exempt from taxation under Section 144(a) of the Code or
under Section 103(b)(6) of the Internal Revenue Code of 1954, as amended, the
proceeds of which are or will be primarily used with respect to such facilities;
(II) such person, firm or corporation was, is, or will be a Principal User,
during the 6-year period beginning three (3) years before the date of issuance
of the Series 1999A Bonds and ending three (3) years after such date, of
facilities located wholly or partly within the Project Municipality; or (III)
there is allocable to such person, firm or corporation (within the meaning of
Section 144(a)(10) of the Code) any portion of the face amount of any Tax-Exempt
Facility-Related Bonds which were issued prior to, and outstanding on the date
of issuance of the Series 1999A Bonds, by virtue of being a Principal User of
such facilities financed with such obligations; or (ii) to gain control of any
such person, firm or corporation; or (iii) to acquire a greater than 50%
ownership interest in any such person, firm or corporation (whether by ownership
of stock or otherwise); or (iv) to enter into any exchange of property for stock
or stock for property pursuant to a plan of reorganization with any such person,
firm or corporation; or (v) to otherwise cause such persons to be the same or
Related Persons to the Borrower or any Principal User of the Project, the
Borrower, any Principal User of the Project, or any Related Person shall, prior
to the taking of any of the foregoing proposed actions, obtain the consent of
the Authority and a written opinion of McCarter & English, LLP or other
nationally recognized bond counsel satisfactory to the Issuer to the effect that
the proposed action will not cause the interest on the Series 1999A Bonds to
become included in the gross income of the holder of the Series 1999A Bonds for
Federal income tax purposes except in the event such holder is a substantial
user or a related person thereto within the meaning of Section 147 of the Code.
(d) The Borrower hereby covenants not to enter into any lease or other
agreement during the Test Period which will result in the other party to the
agreement becoming a Principal User of the Project unless such lease or other
agreement is approved by the Authority, and a written opinion of McCarter &
English, LLP or other nationally recognized bond counsel has been obtained, to
the effect that the proposed lease or other agreement will not cause the loss of
the exclusion from gross income provided under Section 103(a) of the Code for
interest on the Series 1999A Bonds except in the event the Holder or holders are
a substantial user or a related person thereto within the meaning of Section 147
of the Code.
(e) The Borrower hereby covenants that in connection with complying
with the requirement for payment of the Rebate Amount to the United States with
respect to the Series 1999A Bonds the Borrower will take the following actions:
(i) Eighteen (18) months after the Closing Date, the Borrower
will provide a written certification to the Authority and the Trustee indicating
whether the Borrower complied
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with the 6-month exception to the arbitrage rebate requirement set forth in
Section 148(f)(4)(B) of the Code or the 18-month exception to the rebate
requirement set forth in Treas. Reg. Section 1.148-7(d).
(ii) Unless the Borrower has complied with the 6-month
exception or the 18-month exception, the Borrower will retain a Rebate Expert on
or within thirty (30) days before the Initial Rebate Computation Date and on
each Rebate Computation Date thereafter, (A) to compute the Rebate Amount with
respect to the Series 1999A Bonds for the period ending on the Initial Rebate
Computation Date, (B) to deliver an opinion to the Authority and Trustee
concerning its conclusions with respect to the amount (if any) of such Rebate
Amount together with a written report providing a summary of the calculations
relating thereto and (C) to deliver an opinion to the Authority and Trustee that
all of the gross proceeds of the Series 1999A Bonds (within the meaning of
Section 148(f) of the Code), other than gross proceeds of the Series 1999A Bonds
on deposit in a bona fide debt service fund (within the meaning of Section
148(f)(4) of the Code), have been expended on or prior to the Initial Rebate
Computation Date. Rebate Expert means any of the following chosen by the
Borrower: (1) Bond Counsel, (2) any nationally recognized Accountant, (C) any
reputable firm which offers to the tax-exempt bond industry rebate calculation
services and holds itself out as having expertise in that area, or (4) such
other person as is approved by Bond Counsel.
(iii) In the event the amount in the Project Fund is
insufficient to fund the Rebate Fund, the Borrower shall within ten (10) days of
receipt of the report furnished by the Rebate Expert pursuant to paragraph (ii)
above, pay or cause to be paid to the Trustee for deposit into the Rebate Fund
the difference required to fund the Rebate Amount. If the Borrower fails to make
or causes to be made any payment required pursuant to this paragraph (iii) when
due, the Authority shall have the right, but shall not be required, to make such
payment to the Trustee on behalf of the Borrower. Any amount advanced by the
Authority pursuant to this paragraph (iii) shall be added to the moneys owing by
the Borrower under this Agreement.
(iv) In the event Rebate Amount is due, the Borrower will
direct the Trustee to withdraw from the Rebate Fund and pay over to the United
States the Rebate Amount with respect to the Series 1999A Bonds in installments
as follows: each payment shall be made not later than sixty (60) days after the
current Rebate Computation Date and shall be in an amount which ensures that 100
percent of the Rebate Amount with respect to the Series 1999A Bonds, as of the
current Rebate Computation Date, will have been paid to the United States.
(v) The Borrower acknowledges that the Authority shall have
the right at any time and in the sole and absolute discretion of the Authority
to obtain from the Borrower and the Trustee the information necessary to
determine the amount required to be paid to the United States pursuant to
Section 148(f) of the Code. Additionally, the Authority may, with reasonable
cause, (A) review or cause to be reviewed any determination of the amount to be
paid to the United States made by or on behalf of the Borrower and (B) make or
retain a Rebate Expert to make the determination of the amount to be paid to the
United States. The Borrower hereby agrees to be bound by any such review or
determination, absent manifest error, to pay the costs of such review, including
without limitation the reasonable fees and expenses of counsel or a
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Rebate Expert retained by the Authority, and to pay to the Trustee any
additional amounts for deposit in the Rebate Fund required as the result of any
such review or determination.
(vi) Notwithstanding any provision of this subsection (b) to
the contrary, the Borrower shall be liable, and shall indemnify and hold the
Authority and the Trustee harmless against any liability, for payments due to
the United States pursuant to Section 148(f) of the Code. Further, the Borrower
specifically agrees that neither the Authority nor the Trustee shall be held
liable, or in any way responsible, and the Borrower shall indemnify and hold
harmless the Trustee and Authority against any liability, for any mistake or
error in the filing of the payment or the determination of the amount due to the
United States or for any consequences resulting from any such mistake or error.
The provisions of this paragraph (vi) shall survive termination of this
Agreement.
(vii) The Authority, the Trustee and the Borrower acknowledge
that the provisions of this subsection (b) are intended to comply with Section
148(f) of the Code and the regulations promulgated thereunder and if as a result
of a change in such section of the Code or the promulgated regulations
thereunder or in the interpretation thereof, a change in this Subsection shall
be permitted or necessary to assure continued compliance with Section 148(f) of
the Code and the promulgated regulations thereunder, then with written notice to
the Trustee, the Authority and the Borrower shall be empowered to amend this
subsection (b) and the Authority may require, by written notice to the Borrower
and the Trustee, the Borrower to amend this subsection (b) to the extent
necessary or desirable to assure compliance with the provisions of Section 148
of the Code and the regulations promulgated thereunder; provided that either the
Authority or the Trustee shall require, prior to any such amendment becoming
effective, at the sole cost and expense of the Borrower, an opinion of Bond
Counsel satisfactory to the Authority to the effect that either (A) such
amendment is required to maintain the exclusion from gross income under Section
103 of the Code of interest paid and payable on the Series 1999A Bonds or (B)
such amendment shall not adversely affect the exclusion from gross income under
Section 103 of the Code of the interest paid or payable on the Series 1999A
Bonds.
(f) For purposes of this Section 7.05 the following terms shall have
the meanings set forth below:
"Capital Expenditure" shall mean expenditures as defined in section
144(a)(4) of the Code, i.e., of any expenditure (regardless of how paid, whether
in cash, or stock in a taxable or non-taxable transaction) if:
(A) the capital expenditure was financed or is to be financed other
than out of (I) the proceeds of obligations taken into account as a
prior issue (within the meaning of section 144(a)(2) of the Code), to
the extent so taken into account; or (II) the original proceeds of the
Series 1999A Bonds;
(B) the capital expenditure was incurred during the 6-year period
beginning 3 years prior to the date of issuance of the Series 1999A
Bonds in question and ending 3 years subsequent to the date of issuance
of such Bonds;
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(C) the capital expenditure was paid or incurred with respect to a
facility, the principal user of which is or will be the Borrower or a
related person to the Borrower and such facility is or will be located
within the Applicable Project Location; and
(D) the capital expenditure was properly chargeable to the capital
account of any person or State or local governmental unit (whether or
not such person is a principal user of the facilities to be financed
with the proceeds of the Series 1999A Bonds) determined, for this
purpose, without regard to any rule of the Code which permits
expenditures properly chargeable to capital account to be treated as
current expenses (except expenditures described in section 41(b)(2)(A)
of the Code for which a deduction was allowed under section 174(a) of
the Code) and including any expenditures which may, under any rule or
election under the Code be treated as a capital expenditure (whether or
not such expenditure is so treated).
"Initial Rebate Computation Date" means the date that is not later than
5 years after the issue date of the Series 1999A Bonds.
"Principal User" shall mean principal user as defined in section 144(a)
of the Code and Proposed Treasury Regulations ss.1.103-10(h), and may include:
(a) any person which has an ownership interest in the facility; (b) any person
which uses more than 10 percent of the facility, measured by fair rental value
or use of space (as measured as a percentage of the square footage of non-common
areas); (c) under certain circumstances, any person which manages a facility;
(d) a lessor having a reversionary interest in a facility; (e) under certain
circumstances, any person who is a principal customer of the output of a
facility; and (f) any other person which both enjoys the primary use of the
facility and directly or indirectly constitutes the primary source of payment of
either the principal of or interest on any issue of debt obligations used to
finance the facility.
"Project Municipality" shall mean the Borough of South Plainfield in
the County of Middlesex, New Jersey
"Rebate Amount", as of any date means the excess of the future value,
as of that date, of all receipts on nonpurpose investments allocated to the
Series 1999A Bonds over the future value as of that date, of all Payments on
nonpurpose investments allocated to the Series 1999A Bonds, determined pursuant
to Section 148(f) of the Code and described in Section 4 of the Letter of
Instructions attached to the Authority's Arbitrage Certificate.
"Rebate Computation Date" means (i) the Initial Rebate Computation
Date; (ii) each fifth year thereafter, and (iii) the date that the last of the
Series 1999A Bonds are discharged (i.e., the date of the retirement of the last
obligation of the Series 1999A Bonds).
"Related Person" shall mean a related person as defined in section
144(a)(3) of the Code and includes (i) any relationship between such persons
which would result in a disallowance of losses under section 267 or 707(b) of
the Code, or (ii) such persons who are members of the same controlled group of
corporations (as defined in section 1563(a), except that "more than 50 percent"
shall be substituted for "at least 80 percent" each place it appears therein).
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"Tax-Exempt Facility Related Bonds" shall mean tax-exempt bonds that
are exempt facility bonds (within the meaning of section 142(a) of the Code),
qualified small issue bonds (within the meaning of section 144(a) of the Code),
qualified redevelopment bonds (within the meaning of section 144(c) of the Code)
and industrial development bonds (as defined in section 103(b)(2) of the
Internal Revenue Code of 1954, as amended, as in effect on the day before the
date of enactment of the Tax Reform Act of 1986) to which section 141(a) of the
Code does not apply.
"Test Period" shall mean the three-year period beginning on the later
of the date the facility financed with the proceeds of the Series 1999A Bonds is
placed in service or the date of issue of the Series 1999A Bonds.
In addition, The terms "Initial Rebate Computation Date," "Rebate
Computation Date" and "Rebate Amount" shall have the respective meanings
assigned to such terms as set forth in Treasury Regulation Section 1.148-1 et.
seq. and the Indenture.
Section 7.06. Hazardous Substances.
(a) The Borrower shall comply in all material respects with all
applicable federal, State and local laws, ordinances, rules and regulations,
with respect to Hazardous Substances (as hereinafter defined), and shall keep
the Project free and clear of any liens imposed pursuant to such laws,
ordinances, rules and regulations. Except as previously disclosed to the
Authority, in the event that the Borrower receives any notice from any
governmental authority with regard to Hazardous Substances on, from or affecting
the Project, the Borrower shall (i) immediately notify the Authority and any
other Person, governmental or quasi-governmental authority that it is required
to notify pursuant to any applicable law at such time as it is aware of a
release or threatened released of a Hazardous Substance on, from or affecting
the Project, (ii) immediately notify the Authority at such time as an
environmental investigation or clean-up proceeding is instituted by any Person
in connection with the Project, (iii) comply fully with and assist any such
environmental investigation and clean-up proceeding, (iv) promptly execute and
complete any remedial actions necessary to ensure that no environmental liens or
encumbrances are levied against or exist with respect to the Project, and (v)
promptly, upon the written request of the Authority provide the Authority with
an environmental site assessment or report, in form and substance reasonably
satisfactory to Trustee, and (vi) provide the Authority with copies of all
notices received by the Borrower from any governmental authority or other person
with regard to Hazardous Substances on, from or in any way affecting the
Project. The Borrower shall conduct and complete all investigations, studies,
sampling, and testing, and all remedial, removal, and other actions necessary to
clean up and remove all Hazardous Substances on, from or affecting the Project
in accordance or otherwise in compliance with all applicable federal, State and
local laws, ordinances, rules, regulations and policies.
(b) As used herein, the term "Hazardous Substances" shall include,
without limitation, any flammable explosives, radioactive materials, hazardous
materials, hazardous wastes, hazardous or toxic substances, hazardous or toxic
pollutant, or related materials, asbestos or any material containing asbestos,
or petroleum, petroleum by-products or materials containing
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petroleum, or any other substance, mixture, waste, compound, material, element,
product, or matter as defined by any Federal, State or local environmental law,
ordinance, rule, or regulation including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Section 9601 et seq.), the Hazardous Materials Transportation Act, as
amended (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery
Act, amended (42 U.S.C. Section 9601 et seq.), the Clean Water Act, as amended
(33 U.S.C. Section 1251 et seq.), and the Clean Air Act, as amended (42 U.S.C.
Section 7401 et seq.), and in the regulations adopted and publications
promulgated pursuant thereto at any time.
(c) The indemnity provisions set forth in Section 8.04 of the Mortgage
are specifically incorporated herein by reference and such provisions shall
survive the term of this Agreement.
Section 7.07. No Material Proceedings Affecting Borrower. Except as
disclosed in the Official Statement, there is no action, suit or proceeding at
law or in equity or by or before any governmental instrumentality or other
agency now pending or, to the knowledge of the Borrower, threatened against or
affecting it or any of its properties or rights which, if adversely determined,
would (i) materially affect the transactions contemplated hereby, (ii) affect
the validity or enforceability of this Agreement, the Indenture and all
documents and instruments executed in connection herewith or therewith, (iii)
materially affect the ability of the Borrower to perform its obligations under
this Agreement, the Indenture and all documents and instruments executed in
connection herewith or therewith, (iv) materially impair the value of the
Project, (v) materially impair the Borrower's right to carry on its business
substantially as now conducted, or (vi) have a material adverse effect on the
Borrower's financial condition.
Section 7.08. Tax Filings. The Borrower has filed or caused to be filed
all federal, state and local tax returns which are required to be filed, and has
paid or caused to be paid all taxes as shown on said returns or on any
assessment it has received, to the extent that such taxes have become due,
except such taxes as are being contested by the Borrower in appropriate
proceedings or for which Borrower has filed extensions.
Section 7.09. No Existing Defaults. Except as disclosed in the audited
financial statements delivered to the Authority and the Underwriter, the
Borrower, to its knowledge, is not in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
material agreement or instrument to which it is a party or by which it is bound.
Section 7.10. No Material Misstatements or Omissions. The application
submitted by Borrower to the Authority to obtain financing for the Project, the
Official Statement, the Indenture, this Agreement and all other documents,
certificates, or statements furnished to the Underwriter or the Authority by the
Borrower are true, correct and complete, do not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements contained herein and therein regarding the Borrower not misleading or
incomplete. It is specifically represented that the Borrower is neither involved
in any litigation required to be disclosed in the Official Statement nor the
subject of any investigation or administrative proceeding except as disclosed in
the Official Statement. It is specifically understood by the
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Borrower that all such statements, representations and warranties shall be
deemed to have been relied upon by the Authority as an inducement to make the
Loan and that if any such statements, representations and warranties were false
in any material respect at the time they were made, the Authority may, in its
sole discretion, consider any such misrepresentation or breach of warranty an
Event of Default and exercise the remedies provided for in this Agreement.
Section 7.11. Inducement to Borrower. Financial assistance provided by
the Authority is an important inducement to the Borrower to locate or retain the
Project within the State.
Section 7.12. Borrower's Reporting Obligations.
(a) On each anniversary of the Closing Date of the Bonds, the Borrower
shall furnish or cause to be furnished to the Authority and the Trustee the
following: (i) a certification indicating whether or not the Borrower is aware
of any condition, event or act which constitutes an Event of Default or which
would constitute an Event of Default with the giving of notice or passage of
time, or both, under any of the Bond Documents; (ii) a written description of
the present use of the Project and a description of any anticipated material
change in the use of the Project or in the number of employees employed at the
Project; and (iii) an employment report.
(b) The Borrower shall furnish or cause to be furnished to the
Authority, promptly upon request by the Authority, and to the Trustee, upon
receipt thereof by the Borrower: (i) a copy of any letter or report with respect
to the management of the Borrower's operations submitted to the Guarantor or the
Borrower by their Accountant and a copy of any written response of the Guarantor
or the Borrower thereto and (ii) copies of any correspondence to or from the
Food and Drug Administration relating to approvals already issued to the
Borrower, or for which the Borrower is making application.
(c) The Borrower will send to the Underwriter, to each Owner of not
less than $1,000,000 in aggregate principal amount of Bonds and, upon written
request by any Owner, at such Owner's expense, a copy of any information
supplied to the Trustee pursuant to this Section 7.12.
Section 7.13. Cooperation with Trustee. The Borrower covenants and
agrees that it will not interfere with the exercise of the power and authority
granted to the Trustee in the Indenture. The Borrower further agrees to aid in
furnishing to the Authority or the Trustee any documents, financial reports,
certificates or opinions that may be required under the Indenture or reasonably
requested by the Trustee and to comply in all material respects with the
provisions thereof to the extent applicable to the Borrower.
Section 7.14. Affirmative Action and Prevailing Wage Regulations. To
the extent that any of the proceeds of the Loan are used for construction, the
Borrower shall comply with the Authority's Affirmative Action and Prevailing
Wage Rate Regulations with respect to such construction, and to that end:
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(a) Insert in all construction bid specifications for any construction
contract (as such term is defined in the Authority's Affirmative Action and
Prevailing Wage Rate Regulations) the following provisions:
(i) Construction of this project is subject to the
Affirmative Action Regulations of the New Jersey Economic
Development Authority which establishes hiring goals for
minority and female workers. Any contractor or subcontractor
must agree to make a every effort to meet the established
goals and to submit certified reports and records required by
the Authority. Copies of the Affirmation Action Regulations
may be obtained by writing to: Office of Affirmative Action,
New Jersey Economic Development Authority, Gateway One, Suite
2403, Newark, New Jersey 07102;
(ii) Submission of a bid signifies that the bidder
knows the requirements of the Affirmative Action Regulations
and signifies the bidder's intention to comply. Construction
of this project is subject to N.J.A.C. 19:30-3.1 et seq.
Workers employed in construction of this project must be paid
at a rate not less than the prevailing wage rate established
by the New Jersey Commissioner of Labor;
(b) Include in all construction contracts those provisions which are
set forth in the Addendum to Construction Contract annexed hereto as Exhibit A;
(c) Obtain from all contractors and submit to the Authority a
contractor's certificate in the form annexed hereto as Exhibit B within three
(3) business days of the execution of any construction contract;
(d) Create an office of Borrower Affirmative Action Officer and
maintain in that office until the completion date an individual having
responsibility to coordinate compliance by the Borrower with the Authority's
Affirmative Action Regulations and to act as liaison with the Authority's Office
of Affirmative Action;
(e) Submit to the Authority on the completion date, a completion
certificate in the form annexed hereto as Exhibit C; and
(f) Furnish to the Authority all other reports and certificates
required under the Authority's Affirmative Action and Prevailing Wage Rate
Regulations.
Section 7.15. Costs and Expense. All expenses in connection with the
preparation, execution, delivery, recording and filing of this Agreement, the
Mortgage, the Note and other collateral documents and in connection with the
preparation, issuance and delivery of the Bonds, the Authority's fees, the fees
and expenses of Bond Counsel, the fees and expenses of the Authority's counsel,
the fees and expenses of the Trustee, the fees and expenses of Trustee's counsel
and the fees and expenses of counsel to the initial owners of the Bonds shall be
paid directly by the
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Borrower. The Borrower shall also pay throughout the term of the Bonds the
Trustee's annual fees and expenses under the Indenture, this Agreement and the
Mortgage, including, but not limited to, reasonable attorney's fees, fees and
expenses incurred by the Authority or the Trustee in enforcing the full and
punctual performance by the Borrower of its covenants, agreements and
obligations under this Agreement, the Note and the Mortgage, and all costs of
issuing, marketing, collecting payment on and redeeming the Bonds thereunder,
including any fees and expenses incurred by the Authority under this Agreement
or the Indenture and any costs and expenses of any Owner in connection with any
approval, consent or waiver under, or modification of, any such document.
Section 7.16. Rate Covenant.
(a) The Borrower agrees that during each fiscal quarter beginning with
the fiscal quarter ending December 31, 2000, it will produce a Debt Service
Coverage Ratio of at least 1.50 for such fiscal quarter (the "Rate Covenant").
(b) On or before the end of each fiscal quarter, the Borrower shall
submit to the Trustee a report evidencing its compliance or non-compliance with
the Rate Covenant for the fiscal quarter in question. The report may be prepared
by the Borrower.
Section 7.17. Operating Budget. At least sixty (60) days prior to the
beginning of each of its Fiscal Years, the Borrower shall prepare and file an
Operating Budget adopted by the Borrower for the next Fiscal Year with the
Trustee. Within 30 days after the end of each Fiscal Year, the Borrower shall
provide to the Trustee a report with respect to any monthly expenditure for
Operating Expenses that exceeds the amount therefor set forth in the Operating
Budget by more than 10%.
Section 7.18. Operating Expense Reserve Fund; Capital and Maintenance
Fund.
(a) The Borrower may request withdrawals from the Operating Expense
Reserve Fund to pay Operating Expenses, Debt Service Requirements on the Bonds
(but only after exhausting all amounts in the Debt Service Reserve Fund and the
Capital and Maintenance Fund), the non-capitalizable costs of maintenance of or
repairs to the Project or its rebate obligations, all as provided in the
Indenture. The Borrower shall cause any monies received from such withdrawals to
be used as soon as practicable.
(b) The Borrower may request a withdrawal from the Capital and
Maintenance Fund pursuant to the provisions of the Indenture to be used to
finance capital repairs to or extraordinary maintenance expenses of the Project
(but not new capital projects) if other moneys of the Borrower are insufficient
therefor. In addition, the Borrower may request a withdrawal from the Capital
and Maintenance Fund pursuant to the provisions of the Indenture for Debt
Service Requirements on the Bonds (but only after exhausting all amounts in the
Debt Service Reserve Fund) and its rebate obligations. The Borrower shall cause
any monies received from such withdrawal to be applied as soon as practicable.
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Section 7.19. Liquidity Covenant.
(a) The Borrower agrees to maintain at a minimum unrestricted cash or
unrestricted marketable securities which, as of the end of each fiscal quarter:
(i) for the fiscal quarters ending March 31, 2000 through March 31, 2004, is not
less than 30 Days-Cash-On-Hand; and (ii) for each fiscal quarter thereafter, is
not less than 60 Days-Cash-On-Hand (collectively, the "Liquidity Covenant").
(b) On or before the end of each fiscal quarter, the Borrower shall
submit to the Trustee a report evidencing its compliance or non-compliance with
the Liquidity Covenant for such fiscal quarter. The report may be prepared by
the Borrower, but shall be reviewed by an Accountant.
Section 7.20. Trade Payables Covenant. As of the end of each fiscal
quarter, beginning with the fiscal quarter ending December 31, 1999, the
Borrower shall maintain no more than 20% of trade accounts payable in excess of
120 days (the "Trade Payables Covenant").
Section 7.21. Additional Indebtedness. So long as there shall not have
occurred and be continuing any Event of Default hereunder, the Borrower may,
from time to time, incur other indebtedness which may be on a parity with the
Bonds, and which may be secured by a lien on, or security interest in, on the
Project , which is subordinate, or which is equal and ratable (but no senior or
superior), to the lien on or security interest in the Project held by or for the
benefit of the Trustee, but only upon the following terms and conditions:
(a) to finance (i) the costs of enlarging, improving, modifying,
altering or replacing the Project or any Equipment therein, (ii) refunding any
Outstanding bonds; or (iii) any combination of the foregoing; and (iv) paying
the costs and expenses incurred in connection with such indebtedness;
(b) the Borrower first files with the Trustee (i) a certificate of an
independent public accountant to the effect that the Debt Service Coverage Ratio
for each of the two full most recent Fiscal Years of the Borrower was not less
than 1.40 and that based upon a financial feasibility study prepared by such
independent public accountant, the forecasted Debt Service Coverage Ratio for
each of the two full Fiscal Years of the Borrower next following the incurrence
of such indebtedness will not be less than 1.40 and setting forth in detail all
calculations relevant to the computation of such Debt Service Coverage Ratios
and (ii) an opinion of Bond Counsel that the incurrence of such indebtedness
will not impair (A) the exclusion of interest on the Series 1999A Bonds or any
other tax-exempt series of Bonds issued under the Indenture from the gross
income of the recipients thereof for federal income tax purposes or (B) the
status of the Project as an authorized "project" under the Act.
Notwithstanding the foregoing, the Borrower shall have the right to
incur debt for the purpose of refinancing any debt of the Borrower existing as
of the date hereof without having to satisfy the requirements set forth in this
Section 7.21, so long as such indebtedness does not exceed 85% of the Borrower's
accounts receivable, inventory (as such terms are defined in the New Jersey
Uniform Commercial Code), and the appraised value of property, plant and
equipment.
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Section 7.22. Financial Statements. The Borrower shall provide the
Authority (upon request) and the Trustee with copies of the following items
(each of which must show budgeted and actual results for the relevant period,
the year-to-date and the corresponding period and year-to-date for the
immediately preceding Fiscal Year):
(a) Within thirty (30) days after the end of each month, unaudited
monthly statements of the Borrower's operations, its balance sheet and statement
of cash flows.
(b) Within forty-five (45) days after the end of each calendar quarter
(including the fourth such quarter), unaudited quarterly statements of the
Borrower's operations, its balance sheet, a calculation of compliance with the
Financial Covenants and a statement of cash flows.
(c) Within one hundred twenty (120) days after the end of each Fiscal
Year, audited financial statements of the Guarantor prepared in accordance with
Generally Accepted Accounting Principles and an Accountant's report thereon,
including a calculation of the Borrower's compliance with the Financial
Covenants.
(d) The Borrower will send to the Underwriter, to each Owner of not
less than $1,000,000 in aggregate principal amount of Bonds and, upon written
request by any Owner, at such Owner's expense, a copy of any information
supplied to the Trustee pursuant to this Section 7.22.
Section 7.23. Year 2000 Compliance. All software or computer programs
used by the Borrower in the operations of its business and material to its
operations after calendar year 1999 is designed to be used prior to, during and
after the calendar year 2000, and such software or computer programs will
operate during each time period without material error relating to date data,
specifically including any error relating to, or the product of, date data which
represents or references different centuries or more than one century. Without
limiting the generality of the foregoing, (i) all such software or computer
programs will not abnormally end or provide invalid or incorrect results as a
result of date data and (ii) all such software and computer programs have been
designed to ensure year 2000 compatibility, including date data, century
recognition, calculations which accommodate same century and multi-century
formulas and date values, and date data interface values that reflect the
century.
Section 7.24. Continuing Disclosure. The Borrower hereby covenants and
agrees that it will comply with and carry out all of the provisions of the
Continuing Disclosure Agreement among the Guarantor, the Borrower and the
Trustee, as the dissemination agent, dated as of June 1, 1999 as the same may be
amended or supplemented from time to time in connection with the Bonds (the
"Continuing Disclosure Agreement"). The Trustee may (and, at the request of any
Participating Underwriter or Owners of at least 25% aggregate principal amount
in Outstanding Bonds, shall) or any Owner or Beneficial Owner of Bonds may take
such actions as may be necessary and appropriate, including seeking specific
performance by court order, to cause the Borrower to comply with its obligations
under this Section 7.24. For purposes of this Section 7.24, (a) "Beneficial
Owner" means any person which (i) has the power, directly or indirectly, to vote
or consent with respect to, or to dispose of ownership of, any Bonds (including
persons holding Bonds through nominees, depositories or other intermediaries),
or (ii) is treated as the
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owner of any Bonds for federal income tax purposes and (b) "Participating
Underwriter" shall have the meaning set forth for such term in Rule 15(c)2-12 of
the Securities and Exchange Commission.
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ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
Section 8.01. Events of Default. Each of the following events shall
constitute an "Event of Default" under this Agreement:
(a) if the Borrower fails to make any payment required under this
Agreement within ten days of the date when due; or
(b) if the Project or any part thereof necessary for efficient
operation is destroyed, damaged or rendered unusable to such extent that the
same cannot yield sufficient revenues to make payments required under this
Agreement, and the damage is not promptly repaired in accordance with the
provisions hereof for any reason whatsoever; or
(c) if the Borrower fails to perform any of its other covenants or
conditions or fails to perform any of its obligations hereunder and such failure
continues for thirty (30) days after the Authority or the Trustee gives the
Borrower notice thereof; provided, however, that failure to comply with Section
7.24 hereof shall not constitute an Event of Default hereunder; or
(d) if the Borrower shall (i) apply for or consent to the appointment
of a receiver, trustee, liquidator or custodian of the Borrower or of the
property of the Borrower, or (ii) admit in writing its inability to pay the
debts of the Borrower generally as they become due; or (iii) make a general
assignment for the benefit of creditors; or (iv) be adjudicated a bankrupt or
declared insolvent; or (v) commence a voluntary case under the United States
Bankruptcy Code or file a voluntary petition or answer seeking reorganization,
an arrangement with creditors or an order for relief or seeking to take
advantage of any insolvency law or file an answer admitting the material
allegations of a petition filed against the Borrower in any bankruptcy,
reorganization or insolvency proceeding, or corporate action of the Borrower
shall be taken for the purpose of effecting any of the foregoing; or (vi) if
without the application, approval or consent of the Borrower, a proceeding shall
be instituted in any court of competent jurisdiction, under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking in respect
of the Borrower an order for relief or an adjudication in bankruptcy,
reorganization, dissolution, winding up, liquidation, a composition or
arrangement with creditors, a liquidator or custodian of the Borrower or of all
or any substantial part of the assets of the Borrower, or other like relief in
respect thereof under any bankruptcy or insolvency law, and if such proceeding
is being contested by the Borrower in good faith, the same shall (A) result in
the entry of an order for relief or any such adjudication or appointment of (B)
not have been vacated, dismissed and discharged subject to no further appeal
within sixty (60) days from the date of entry thereof; or
(e) the occurrence of any event of default under the Indenture or the
Mortgage, subject to any periods for cure or provisions for annulment; or
(f) if any representation or warranty by or on behalf of the Borrower
made herein or in any report, certificate, financial statement or other
instrument furnished in connection with this Agreement shall prove to be false
or misleading in any material respect when made; or
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(g) If the Borrower defaults (and such default continues beyond any
applicable cure period) under any of the documents evidencing or securing any of
its other substantial obligations.
Section 8.02. Acceleration. Upon the occurrence of any Event of Default
hereunder, the Trustee shall, but only upon demand therefor by the Majority
Owners, declare the principal of the then Outstanding Bonds and all accrued
interest immediately due and payable. Upon such declaration by the Trustee, the
Authority shall have the right to terminate this Agreement and, upon such
termination, there shall become immediately due and payable hereunder as then
current damages of the Authority under this Agreement, an amount equal to all
amounts due and owing as loan payments hereunder. Until such amount is paid by
the Borrower, at the time or times and in the manner required to permit the
Authority to meet its obligations under the Indenture, the Authority shall
continue to have all of the rights, powers and remedies herein (notwithstanding
the termination hereof), and, for such time as may be necessary to enable the
Authority to satisfy in full its obligations under the Indenture, the term of
this Agreement shall, at the election of the Authority, be extended at the will
of the Authority, and the Borrower's obligations hereunder shall continue in
full force and effect.
Section 8.03. Payment of Loan Payments on Default; Suit Therefor.
(a) The Borrower covenants that, if default shall be made in the
payment of any sum payable by the Borrower under this Agreement as and when the
same shall become due and payable, whether at maturity or by acceleration or
otherwise, then, upon demand of the Authority or its assignee, the Borrower will
pay to the Authority or its assignee the whole amount of the loan payments that
then shall have become due and payable hereunder and to the extent such loan
payments represent payments due on the Bonds, such payments shall be applied to
the payment of the Bonds in accordance with the terms of the Indenture; and, in
addition thereto, such further amount as shall be sufficient to pay the costs
and expenses of collection, including reasonable compensation based upon actual
time expended by the Authority and its assignee and their respective agents,
attorneys and counsel, and any expenses or liabilities incurred by the Authority
or its assignee (other than through the Authority's or its assignee's own gross
negligence or bad faith). In case the Borrower shall fail forthwith to pay such
amounts upon such demand, the Authority or its assignee shall be entitled and
empowered to institute any actions or proceedings at law or in equity for the
collection of the sums so due and unpaid, and may prosecute any such action or
proceeding to judgment or final decree, and may enforce any such judgment or
final decree against the Borrower and collect in the manner provided by law out
of the property of the Borrower the money adjudged or decreed to be payable.
(b) In case there shall be pending proceedings in bankruptcy or for the
reorganization of the Borrower under the Bankruptcy Code or any other applicable
law, or in case a receiver or trustee shall have been appointed for the benefit
of the creditors or the property of the Borrower, or in the case of any other
similar judicial proceedings relative to the Borrower, the Authority or its
assignee shall be entitled and empowered, by intervention in such proceedings or
otherwise, to file and prove a claim or claims for the whole amount of the loan
payments, and any other amounts due and owing hereunder by Borrower, including
interest owing and unpaid in respect
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thereof, and, in case of any judicial proceedings, to file such proofs of claim
and other papers or documents as may be necessary or advisable in order to have
the claims of the Authority or its assignee allowed, and to collect and receive
any moneys or other property payable or deliverable on any such claims, and to
distribute the same after the deduction of its charges and expenses; and any
receiver, assignee or trustee in bankruptcy or reorganization is hereby
authorized to make such payments to the Authority or its assignee, and to pay to
the Authority or its assignee any amount due it for compensation based upon
actual time expended and expenses, including counsel fees incurred by it up to
the date of such distribution.
Section 8.04. Other Remedies. Whenever the Borrower is in default
hereunder, the Authority or its assignee shall be entitled to any one or more of
the following remedies:
(a) The Authority or its assignee shall be entitled to all the remedies
under the New Jersey Uniform Commercial Code as secured party in respect of the
property subject to the security interests created hereunder, including without
limitation the right to take possession of such property and sell the same at
private or public sale, the proceeds of such sale to be applied as provided in
subsection (b) of this Section 8.04;
(b) Any money received by the Authority under this Section 8.04 shall
be paid to its assignee and applied pursuant to the provisions of Section 7.10
of the Indenture; or
(c) The Authority or its assignee may, without posting bond or other
security, pursue whatever remedies may be available at law or in equity as may
appear necessary or desirable to collect any other amounts payable by the
Borrower hereunder, or to enforce performance and observance of any obligation,
agreement or covenant of the Borrower under this Agreement, it being
acknowledged and agreed by Borrower that any such breach or threatened breach
will cause immediate and irreparable injury to the Authority and its assigns and
that money damages will not provide an adequate remedy therefor.
No action taken pursuant to this Section 8.04 shall relieve the
Borrower of the Borrower's obligations pursuant to Section 3.01, 3.03, 3.05 and
8.03 hereof, all of which shall survive any such action.
Section 8.05. Waiver. The Borrower hereby waives and relinquishes the
benefits of any present or future law exempting the Project from attachment,
levy or sale on execution, or any part of the proceeds arising from the sale
thereof, and all benefit of stay of execution or other process.
Section 8.06. Cumulative Rights. No remedy conferred upon or reserved
to the Authority or its assignee by this Agreement is intended to be exclusive
of any other available remedy or remedies, but each and every such remedy shall
be cumulative and shall be in addition to every other remedy given under this
Agreement or now or hereafter existing at law or in equity or by statute. No
waiver by the Authority or its assignee of any breach by the Borrower of any of
its obligations, agreements or covenants hereunder shall be a waiver of any
subsequent breach, and no delay or omission to exercise any right or power shall
impair any such right or
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power or shall be construed to be a waiver thereof, but any such right and power
may be exercised from time to time and as often as may be deemed expedient.
Section 8.07. No Exercise of Remedies Without Consent of Majority
Owners. Notwithstanding anything to the contrary contained in this Agreement,
neither the Authority nor any assignee of the Authority under this Agreement
shall exercise or pursue remedies or declare an Event of Default or cause an
acceleration of the obligations contained in this Agreement without the prior
written consent of the Majority Owners as long as no voluntary or involuntary
case has been commenced by the filing of a petition under the Bankruptcy Code or
any other law relating to insolvency, bankruptcy, reorganization, winding-up or
composition or adjustment of debts by or against the Borrower; provided,
however, that the Authority shall not be required to obtain the consent of the
Majority Owners to enforce the public purpose covenants of the Borrower set
forth in this Agreement or to effect a mandatory redemption of the Bonds
pursuant to Section 4.01(c)(i) of the Indenture.
Section 8.08. Determination of Taxability Not a Default.
Notwithstanding anything to the contrary contained in this Agreement, in the
event of a breach or inaccuracy of any applicable statutory or regulatory
requirement or of a covenant or representation of the Borrower relating to the
exclusion from gross income of interest on the Series 1999A Bonds for purposes
of federal income taxation, such breach or inaccuracy shall not be considered an
Event of Default hereunder so long as the Borrower performs all of its
obligations arising out of the breach or inaccuracy including, without
limitation, the payment of all amounts due under Sections 3.01 and 3.05 hereof
if such breach or inaccuracy results in a Determination of Taxability with
respect to the Series 1999A Bonds.
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ARTICLE IX
OPTIONS TO TERMINATE AGREEMENT
Section 9.01. Option to Terminate Upon Defeasance. The Borrower shall
have, and is hereby granted, the option to terminate its obligations under this
Agreement prior to full payment of the Bonds by providing for the payment of all
of the Outstanding Bonds in accordance with Article X of the Indenture.
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ARTICLE X
MISCELLANEOUS
Section 10.01. Approval of Indenture. The Borrower acknowledges that it
has received an executed copy of the Indenture and that it is familiar with its
provisions, and agrees that it will take all such actions as are required or
contemplated under the Indenture to preserve and protect the rights of the
Trustee thereunder and that it will not take any action which would cause an
"Event of Default" thereunder. It is agreed by the Borrower and the Authority
that any redemption of the Bonds prior to maturity shall be effected as provided
in the Indenture.
Section 10.02. Taxes - Rights of Authority to Pay. If the Borrower, at
any time, fails to pay any taxes or other impositions payable by it in
accordance with Section 3.04 hereof, or shall fail, within the time provided for
in Article VIII hereof after the notice therein specified of any Event of
Default, as therein defined, has been given thereunder, to make any other
payment or perform any other act on its part to be made or performed, then the
Authority may, but shall not be obligated so to do, and without further notice
to or demand upon the Borrower and without waiving or releasing the Borrower
from any of its obligations under this Agreement, (a) pay any taxes or other
impositions payable by the Borrower in accordance with Section 3.04 hereof, or
(b) make any other payment or perform any other act on the Borrower's part to be
made or performed as provided in this Agreement. All sums so paid by the
Authority and all necessary incidental costs and expenses in connection with the
performance of any such act by the Authority shall, together with interest
thereon at the tax-exempt rate, be payable to the Authority, within five (5)
days of demand, or, at the option of the Authority, may be added to any
installment of the loan payments then due or thereafter becoming due under this
Agreement, and the Borrower covenants to pay any such sums.
Section 10.03. Illegal Provisions Disregarded. If any term or provision
hereof or the application thereof for any reason or circumstance shall to any
extent be held to be invalid or unenforceable, this Agreement shall be invalid
or unenforceable only to the extent of such invalidity or unenforceability and
such invalidity or unenforceability shall not invalidate the balance of such
provision or the remaining terms or provisions of this Agreement or the
application of such terms or provisions to persons other than those as to which
it has been held invalid or unenforceable; each term and provision hereof shall
be valid and enforceable to the fullest extent permitted by law, and shall be
liberally construed in favor of the Authority or its assignee in order to effect
the intent of this instrument.
Section 10.04. Limitation of Liability of the Authority. THE STATE IS
NOT OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR TAXING POWER OF THE
STATE IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OR REDEMPTION PRICE, IF ANY, OF
OR INTEREST ON THE BONDS. THE BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE
AUTHORITY, PAYABLE SOLELY OUT OF THE REVENUES OR OTHER RECEIPTS, FUNDS OR MONEYS
OF THE AUTHORITY PLEDGED UNDER THE INDENTURE AND FROM ANY AMOUNTS OTHERWISE
AVAILABLE UNDER THE INDENTURE FOR THE PAYMENT OF THE BONDS. THE BONDS DO NOT NOW
AND SHALL NEVER
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CONSTITUTE A CHARGE AGAINST THE GENERAL CREDIT OF THE AUTHORITY. THE AUTHORITY
HAS NO TAXING POWER.
Section 10.05. No Recourse as to the Authority. No recourse under or
upon any obligation, covenant or agreement contained herein or in any Bond shall
be had against the Authority or any member, officer, employee or agent, past,
present or future, of the Authority or of any successor of the Authority under
this Agreement, any other agreement, any rule of law, statute or constitutional
provision, or by enforcement of any assessment or by any legal or equitable
proceeding or otherwise, it expressly being agreed and understood that the
obligations of the Authority hereunder, and under the Bonds and elsewhere, are
solely corporate obligations of the Authority to the extent specifically limited
in the Act and that no personal liability whatsoever shall attach to or shall be
incurred by the Authority or such members, officers, employees or agents, past,
present or future, of the Authority or of any successor of the Authority, or any
of them, because of such indebtedness or by reason of any obligation, covenant
or agreement contained herein, in the Bonds or implied therefrom.
Section 10.06. Reference to Statute or Regulation. A reference herein
to a statute or to a regulation issued by a governmental agency includes the
statute or regulation in force as of the date hereof, together with all
amendments and supplements thereto and any statute or regulation substituted for
such statute or regulation, unless the specific language or the context of the
reference herein clearly includes only the statute or regulation in force as of
the date hereof.
A reference herein to a governmental agency, department, board,
commission or other public body or to a public officer includes an entity or
officer which or who succeeds to substantially the same functions as those
performed by such public body or officer as of the date hereof, unless the
specific language or the context of the reference herein clearly includes only
such public body or public officer as of the date hereof.
Section 10.07. Notices. All notices required or authorized to be given
by the Borrower, the Authority or the Trustee under the Indenture or pursuant to
this Agreement shall be in writing and shall be sent by registered or certified
mail, postage prepaid, to the following addresses:
If to the Authority,
If sent by U. S. Mail, to:
New Jersey Economic Development Authority
P. O. Box 990
Trenton, NJ 08625-0990
Attention: Managing Director of Investment Banking
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If sent by overnight courier service, to:
New Jersey Economic Development Authority
36 W. State Street
Trenton, NJ 08625-0990
Attention: Managing Director of Investment Banking
If to the Borrower, to:
Able Laboratories, Inc.
6 Hollywood Court
South Plainfield, NJ 07080
Attention: Director of Finance
If to the Trustee, to:
U.S. Bank Trust National Association
101 North First Avenue, Suite 2000
Phoenix, AZ 85003
Attention: Corporate Trust Services
If to the Underwriter, to:
Schneider Securities, Inc.
125 Half Mile Road
Red Bank, NJ 07701
Attention: Rick Milham
or to such other addresses as may from time to time be furnished to the parties,
effective upon the receipt of notice thereof given as set forth above. Each of
the above agrees that it shall send a duplicate copy or executed copy of all
certificates, notices, correspondence or other data and materials required to be
sent to one of the above to all other parties.
Section 10.08. Applicable Law. This Agreement shall be deemed to be a
contract made in the State and governed by the laws of the State.
Section 10.09. Amendments. This Agreement may not be amended except by
an instrument in writing signed by the parties and, if such amendment occurs
after the issuance of any of the Bonds, consented to by the Trustee, pursuant to
Section 6.07 of the Indenture.
Section 10.10. Term of Agreement. This Agreement and the respective
obligations of the parties hereto shall be in full force and effect from the
date hereof until all principal of and interest on the Bonds shall have been
paid or provision for such payment shall have been made pursuant to the terms
and provisions of the Indenture.
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Section 10.11. Amounts Remaining in Debt Service Fund. It is agreed by
the parties hereto that any amounts remaining in the Debt Service Fund
established under the Indenture upon expiration or sooner termination of this
Agreement after payment in full of the Bonds (or provision for payment thereof
having been made in accordance with the provisions of the Indenture) and of the
fees, charges and expenses of the Trustee and the Authority in accordance with
the Indenture, shall belong to and be paid to the Borrower by the Trustee.
Section 10.12. Survival of Covenants, Conditions and Representations.
All covenants, conditions and representations of the Borrower contained herein
that, by nature, implied or expressly involve performance in any particular
manner after the termination of this Agreement or that cannot be ascertained to
have been performed until after termination of this Agreement, shall survive
said termination. Without intending to limit the generality of the foregoing,
the Borrower's covenant to indemnify the Authority and the Trustee, as set forth
in Section 3.10 hereof, shall survive any termination of this Agreement.
Section 10.13. Headings. The captions or headings in this Agreement are
for convenience of reference only and shall not control or affect the meaning or
construction of any provision hereof.
Section 10.14. Multiple Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be regarded for all purposes as an
original and such counterparts shall constitute but one and the same instrument.
Section 10.15. Consent. Whenever the consent of the Authority is given
pursuant to the terms of this Agreement, such consent shall create no liability
or responsibility upon the Authority, and whenever required, shall not be
unreasonably withheld, conditioned or delayed.
Section 10.16. Filing of Other Documents. The parties hereto shall
execute, at the request of the Borrower, and the Borrower shall file such other
documents necessary to perfect all security interests created pursuant to the
terms of this Agreement, the Mortgage and the Indenture, and the Authority shall
have no responsibilities for such filings whatsoever, other than executing the
documents requested by the Borrower.
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IN WITNESS WHEREOF, the NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY has
caused this Agreement to be executed in its name and on its behalf by its
Executive Director and its official seal to be affixed hereunto and attested by
its Secretary or Assistant Secretary, and ABLE LABORATORIES, INC. has caused
this Agreement to be executed in its name and on its behalf by an authorized
officer and its official seal to be affixed hereunto and attested by its
Secretary or Assistant Secretary as of the day and year first above written.
NEW JERSEY ECONOMIC
DEVELOPMENT AUTHORITY
By:__________________________
Caren S. Franzini
Executive Director
(SEAL) Attest:_______________________
Frank T. Mancini, Jr.
Assistant Secretary
ABLE LABORATORIES, INC.
By:__________________________
(SEAL) Attest:_______________________
[Assistant] Secretary
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Exhibit A
Addendum to Construction Contract
A-1
<PAGE>
Exhibit B
Contractor's Certificate and Agreement
B-1
<PAGE>
Exhibit C
Contractor's Completion Certificate
C-1
EXHIBIT 10.9
------------
PROMISSORY NOTE
$2,000,000 Dated: June 24, 1999
FOR VALUE RECEIVED, ABLE LABORATORIES, INC., a corporation duly created
and validly existing under the laws of the State of Delaware (the "Borrower")
promises to pay to he order of the NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY, a
public body corporate and politic and governmental instrumentality of the State
of New Jersey (the "Authority"), the principal sum of TWO MILLION DOLLARS, and
to pay interest from the date of issuance of the 1999 Bonds (hereinafter
defined) on the unpaid principal amount of this Note, such principal and
interest to be paid at the times, in the amounts and at the interest rates
hereinafter provided.
This Note evidences the Borrower's indebtedness to the Authority under
a Loan Agreement dated as of June 1, 1999 (the "Loan Agreement") which provides
for the Authority to issue its Industrial Development Revenue Bonds (Able
Laboratories, Inc. Project) Series 1999A in the principal amount of $1,700,000
(the "1999A Bonds") and its Industrial Development Revenue Bonds (Able
Laboratories, Inc. Project) Series 1999B Bonds (Taxable) in the principal amount
of $300,000 (the"1999B Bonds," and together with the 1999A Bonds, the "1999
Bonds") and for the proceeds of the 1999 Bonds to be loaned to the Borrower to
pay costs of the Project described in the Loan Agreement. This Note is secured
by a leasehold mortgage, security agreement, assignment of rents and financing
statement covering the Realty, the Gross Revenues and personal property
associated with the Facilities from the Borrower to the Authority and by the
other collateral described therein (the "Mortgage"). In order to provide a
source of payment for and to secure the 1999 Bonds, the Authority has
transferred and assigned to the Trustee (as defined below) its right, title and
interest in and to this Note, the Mortgage, the Guaranty and the Loan Agreement,
subject to the reservations set forth therein, and accordingly, all interest and
principal payments due hereunder shall be paid to U.S. Bank Trust National
Association, 101 North First Avenue, Suite 2000, Phoenix, AZ 85003, Attention:
Corporate Trust Services, as Trustee (the "Trustee") under an Trust Indenture
dated as of June 1, 1999 (the "Indenture") as the assignee and holder of this
Note or at such other place as the Trustee or other holder of this Note may
designate in writing to the Authority and the Borrower. All payments made
pursuant to this Note shall be made in any coin or currency of the United States
of America which, at the time of payment, is legal tender for the payment of
public or private debts and which are immediately payable in Federal or other
funds and at or before 11:00 a.m., New York time, on each date when due and
payable.
The Borrower shall pay or cause to be paid the principal, premium, if
any, and interest on this Note at such times and in such amounts which will
permit the Authority to make timely payments of the principal of, premium, if
any, and interest on the 1999 Bonds.
This Note bears interest at the same rates and the interest on this
Note shall be computed and shall be payable on the same terms and conditions as
the interest on the 1999 Bonds, and all of the terms and provisions of the 1999
Bonds pertaining thereto are incorporated by reference herein.
<PAGE>
In any case where the date of maturity of interest on or principal of
this Note or the date fixed for prepayment or redemption of this Note shall be
on (a) a Saturday, Sunday or legal holiday, (b) a day on which banks located in
New York, New York or in the city in which the principal corporate trust office
of the Trustee or the Paying Agent are required or authorized by law to close,
or (c) a day on which the New York Stock Exchange, Inc. is closed, then payment
of principal, premium, if any, or interest need not be made on such date but may
be made on the immediately succeeding Business Day (as defined in the Loan
Agreement) with the same force and effect as if made on the date of maturity or
the date fixed for redemption, and no interest shall accrue for the period after
such date.
The Borrower shall also pay to the Trustee any and all other sums which
the Authority is obligated to pay to the Trustee under the terms and provisions
of the Indenture.
This Note is subject to prepayment or redemption in the same manner as
provided for the redemption under Article IV of the Indenture and the defeasance
under Article X of the Indenture for the 1999 Bonds, and all of such redemption
and defeasance terms and provisions of the 1999 Bonds pertaining thereto are
incorporated by reference herein.
Upon the occurrence of any Event of Default (as defined in the Loan
Agreement) the entire unpaid balance of the principal and accrued interest on
this Note may, at the option of the Authority or the Trustee, as provided in the
Loan Agreement, become immediately due and payable in the manner, with the
effect and subject to the conditions provided in the Loan Agreement.
This Note is subject to all of the terms and conditions of the Loan
Agreement, which are hereby incorporated herein, with the same effect as if the
Loan Agreement were fully set forth herein. Reference is hereby made to the Loan
Agreement, executed counterparts of which are on file with the Authority, the
Borrower and the Trustee, for a description of the security for the Note, the
rights and obligations of the Borrower and the Authority in connection with the
Facilities and the loan made to finance the Project, and such other matters
affecting the indebtedness evidenced by this Note.
THIS NOTE IS A GENERAL OBLIGATION OF THE BORROWER, TO WHICH ITS FULL
FAITH AND CREDIT ARE PLEDGED.
The Borrower and any endorser hereof severally waive presentment,
demand, protest and notices (other than notices provided for in the Loan
Agreement or as required by law).
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<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed on its behalf as of the date above.
ATTEST: ABLE LABORATORIES, INC.
[SEAL]
_____________________ By: _____________________
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<PAGE>
Pay To The Order of U.S. Bank Trust National Association, as Trustee,
Without Recourse.
ATTEST: NEW JERSEY ECONOMIC DEVELOPMENT
AUTHORITY
[SEAL]
_______________________ By: ____________________________
FRANK T. MANCINI, JR. CAREN S. FRANZINI
Assistant Secretary Executive Director
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EXHIBIT 10.10
-------------
- --------------------------------------------------------------------------------
LEASEHOLD MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT OF RENTS
and
FINANCING STATEMENT
between
ABLE LABORATORIES, INC.,
as Mortgagor
and
NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY,
as Mortgagee
Dated as of
June 1, 1999
- --------------------------------------------------------------------------------
Record and return to:
Jacqueline P. Shanes, Esq.
McCarter & English, LLP
Four Gateway Center
Newark, New Jersey 07102
<PAGE>
TABLE OF CONTENTS
(This Table of Contents is for convenience of reference only and is not a part
of the Leasehold Mortgage, Security Agreement, Assignment of Rents and Financing
Statement.)
Page
----
ARTICLE I DEFINITIONS........................................................2
Section 1.01. Terms Defined Above..................................2
Section 1.02. Definitions..........................................2
Section 1.03. Interpretations......................................5
Section 1.04. References, etc......................................6
Section 1.05. Incorporation of Certain Definitions
by Reference.........................................6
Section 1.06. Accounting Terms and Determinations:
Incorporation of UCC Definitions.....................6
ARTICLE II GRANT OF INTEREST AND ASSIGNMENT OF MORTGAGE......................7
Section 2.01. Grant of Interest....................................7
Section 2.02. Assignment of Mortgage...............................7
ARTICLE III REPRESENTATIONS AND WARRANTIES...................................8
Section 3.01. Warranties of Title..................................8
Section 3.02. Lien of this Mortgage................................8
Section 3.03. Financings...........................................8
Section 3.04. Impositions and Other Payments.......................8
ARTICLE IV COVENANTS AND OBLIGATIONS OF THE MORTGAGOR.......................10
Section 4.01. Defects in Title....................................10
Section 4.02. Maintenance and Repair..............................10
ARTICLE V EVENTS OF DEFAULT; REMEDIES.......................................11
Section 5.01. Event of Default....................................11
Section 5.02. Remedies............................................12
Section 5.03. Application of Proceeds.............................14
Section 5.04. Delivery of Possession..............................14
Section 5.05. Appointment of Receiver.............................15
Section 5.06. Remedies Cumulative. Concurrent
and Non-Exclusive...................................15
Section 5.07. No Conditions Precedent to Exercise
of Remedies.........................................15
Section 5.08. Extension, Rearrangement or Renewal of
the Amounts Due under the Agreement.................16
Section 5.09. Waiver of Redemption, Notice and Marshalling
of Assets...........................................16
Section 5.10. Repayment of Expenses...............................16
ARTICLE VI SECURITY AGREEMENT...............................................17
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<PAGE>
Section 6.01. Security Agreement..................................17
Section 6.02. Fixture Filing......................................17
Section 6.03. Security Agreement: Remedies........................17
ARTICLE VII ASSIGNMENT OF RENTS.............................................20
Section 7.01. Assignment of Rents.................................20
Section 7.02. Rights of the Mortgagor's Limited License...........20
Section 7.03. Enforcement of Rents................................20
Section 7.04. Suits and Attornment................................21
Section 7.05. Conflict............................................21
Section 7.06. Assignment of Rents; Remedies.......................21
ARTICLE VIII ENVIRONMENTAL REPRESENTATIONS AND COVENANTS....................23
Section 8.01. Definitions.........................................23
Section 8.02. Representations and Warranties......................23
Section 8.03. Covenants...........................................26
Section 8.04. Indemnities.........................................28
Section 8.05. General.............................................30
ARTICLE IX MISCELLANEOUS PROVISIONS.........................................31
Section 9.01. Construction Mortgage...............................31
Section 9.02. No Obligation of the Mortgagee......................31
Section 9.03. Mortgagor's Attorney-in-Fact........................31
Section 9.04. Damage, Destruction, Condemnation
and Eminent Domain..................................32
Section 9.05. No Waiver by the Mortgagee..........................32
Section 9.06. Satisfaction........................................32
Section 9.07. Notices.............................................32
Section 9.08. Amendment and Waiver................................33
Section 9.09. Payment of Costs and Expenses of Mortgagee..........33
Section 9.10. Taxation of the Amounts Due Under Agreement
and Mortgage........................................33
Section 9.11. No Credit for Taxes.................................34
Section 9.12. Due on Sale; Assignability..........................34
Section 9.13. Severability........................................34
Section 9.14. Governing Law.......................................34
Section 9.15. Future Advances.....................................35
Section 9.16. Headings............................................35
Section 9.17. Entire Agreement....................................35
Section 9.18. Time of the Essence.................................35
Section 9.19. Further Action By Mortgagor.........................35
Section 9.20. Advances by Mortgagee...............................35
Section 9.21. Invalid Provision Disregarded.......................35
Section 9.22. Inspection and Repairs by the Mortgagee.............35
Section 9.23. Assignment..........................................36
SCHEDULE 8.02..............................................................S-1
EXHIBIT A..................................................................A-1
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<PAGE>
LEASEHOLD MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT OF RENTS AND FINANCING STATEMENT
THIS LEASEHOLD MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND
FINANCING STATEMENT (this "Mortgage") dated as of June 1, 1999, is entered into
between ABLE LABORATORIES, INC., a corporation organized and existing under the
laws of the State of Delaware and duly qualified to transact business in the
State of New Jersey (the "Mortgagor") and the NEW JERSEY ECONOMIC DEVELOPMENT
AUTHORITY, a public body corporate and politic and a political subdivision of
the State of New Jersey (the "Mortgagee" or the "Authority").
W I T N E S S E T H:
--------------------
WHEREAS, the Mortgagor has requested the assistance of the Mortgagee in
financing the acquisition of machinery and equipment for an existing
manufacturing facility located in South Plainfield, New Jersey (the "Project");
and
WHEREAS, to finance the costs of the Project, including (i) the funding
of a debt service reserve fund for the Bonds (defined below), (ii) the funding
of a lease reserve fund and (iii) the payment of a portion of the issuance costs
for the Bonds incurred by the Mortgagor in connection with the proposed
financing, the Authority has authorized the issuance of its Industrial
Development Revenue Bonds (Able Laboratories, Inc. Project) Series 1999A, in the
aggregate principal amount of $1,700,000 (the "Series 1999A Bonds") and its
Industrial Development Revenue Bonds (Able Laboratories, Inc. Project) (Taxable)
Series 1999B, in the aggregate principal amount of $300,000 (the "Series 1999B
Bonds" and collectively with the Series 1999A Bonds, the "Bonds"); and
WHEREAS, the Bonds are to be issued under and secured by a Trust
Indenture dated as of June 1, 1999 (as amended and supplemented from time to
time, the "Indenture") with U.S. Bank Trust National Association, in Phoenix,
Arizona (together with its successors, the "Trustee") pursuant to which the
Bonds will be issued; and
WHEREAS, the Authority has entered into a Loan Agreement, dated as of
June 1, 1999 (as may be from time to time amended, the "Agreement"), with the
Mortgagor under which the Authority will lend the proceeds of the Bonds to the
Mortgagor to be used to finance the costs of the Project, and the Mortgagor will
agree to repay the loan at the times and in the installments sufficient to
provide the Authority with money to pay the debt service on the Bonds; and
WHEREAS, the Mortgagor, to secure the Bonds and its obligations under
the Agreement, will execute and deliver to the Authority, and the Authority will
assign to the Trustee, this Mortgage granting (i) a first mortgage lien on the
Mortgagor's leasehold interest in the Facility (as hereinafter defined), (ii) a
first security interest in the Borrower's Equipment (as such term is
<PAGE>
defined in the Uniform Commercial Code as in effect in the State) financed with
proceeds of the Bonds, subject to the Permitted Encumbrances and (iii) a
subordinate security interest in Accounts, Chattel Paper, Gross Revenues,
Documents, Equipment of the Borrower not financed with proceeds of the Bonds,
General Intangibles, Instruments and Inventory (as such terms are defined in the
Uniform Commercial Code as in effect in the State), subject to Permitted
Encumbrances.
NOW, THEREFORE, in consideration of the premises herein contained, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Mortgagor agrees as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Terms Defined Above. As used in this Mortgage,
the terms defined in the preamble and recitals hereof shall have the meanings
indicated therein. Capitalized terms not defined herein shall have the meanings
given to them in the Agreement and the Indenture.
Section 1.02. Definitions. As used herein the following terms
shall have the respective meanings set forth or referred to below.
"Business Day" means any day other than (a) a Saturday or
Sunday, (b) a day on which commercial banks in the city in which the corporate
trust office of the Trustee from which payment on the Bonds will be made is
located are authorized by law to close or (c) a day on which the New York Stock
Exchange is closed.
"Capital Additions" means all capital improvements to the
Facility; all Fixtures, furnishings and equipment which the Mortgagor may
certify in writing to be useful and desirable in connection with the operation
of the Facility; and the restoration, reconstruction or replacement of
buildings, equipment or other property damaged or destroyed by fire or other
casualty.
"Collateral" is defined in Section 6.01 of this Mortgage.
"Default Rate" means a per annum rate equal to the Trustee's
prime rate plus two percent (2%); provided, however, that if such rate is
determined to be unenforceable by a court of law, the Mortgagor shall pay actual
damages to the Mortgagee, which shall include, but shall not be limited to, the
loss of use of the unpaid portion of the Note and the administrative costs of
monitoring the default by the Mortgagor. Such administrative costs include, but
are not limited to, attempts to contact the Mortgagor via written and letter
correspondence, generating and reviewing delinquency reports, evaluating the
delinquent account, evaluating the credit file, entering relevant information
into the Mortgagee's file and/or computer, relaying information to management
and different departments, notifying and reporting to management and different
departments, and the like.
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<PAGE>
"Environmental Report" means the Phase I Environmental Site
Assessment dated July 31, 1996 and prepared by Recon Environmental Corp.
"Event of Default" is defined in Section 5.01 hereof.
"Facility" means the Land and any buildings and improvements
located on the Land, including the Project and any Capital Additions, and
including, without limiting the generality of the foregoing, all buildings,
structures, Fixtures, furnishings, equipment and other related facilities, real,
personal and mixed, all personal property owned or leased by the Mortgagor, and
all franchises, land, rights-of-way, privileges, easements, licenses, rights and
any other interests in property used or useful in connection with or incident to
such facilities.
"Fixtures" means all goods, fixtures, furnishings, building
materials, and equipment owned by the Mortgagor now or hereafter attached to or
installed or placed in or about the Facility for use as part thereof or in
conjunction with the use and occupancy of the Facility, including, but not
limited to, all materials, supplies, equipment, apparatus, tracks, ramps,
loading platforms, machinery, motors, elevators, escalators, fittings, doors,
windows, signs, pylons, screening, awnings, shades, blinds, carpet, floor
coverings, draperies, furnaces, boilers, gas and oil and electric burners and
heaters, ducts, vents, hoods, flues and registers, hot water heaters, sinks,
stoves, ovens, cabinets, countertops, refrigerators, heating, cooling and air
conditioning equipment, fans, ventilators, wiring, panels, all lighting fixtures
and globes and tubes, time clocks, and other electrical equipment, all
television and radio antenna systems, including satellite dish antennas, and all
plumbing and plumbing fixtures and equipment, sprinklers and sprinkler
equipment, and all trees, plants, shrubs and other landscaping, all of which are
and shall be deemed to be a permanent accession to the Facility, and all
recreational equipment and facilities of all kinds, and water, gas, electrical,
storm and sanitary sewer facilities on the Land to the extent they are owned by
the Mortgagor whether or not situated in easements, together with all
accessions, replacements, betterments and substitutions for any of the foregoing
and the proceeds thereof.
"General Intangibles" means all intangible personal property,
including things in action, now owned or hereafter acquired by the Mortgagor
relating to the Facility, other than goods, accounts, chattel paper, documents,
instruments and money of the Mortgagor and includes, without limitation, all (i)
letters of credit, bonds, guaranties, purchase or sales agreements and other
contractual rights (whether similar or dissimilar), rights to performance, and
claims for damages, refunds (including tax refunds), rights and claims under
insurance policies or other monies due or to become due, (ii) orders,
franchises, permits, certificates, licenses, consents, exemptions, variances,
authorizations or other approvals by any Governmental Authority, (iii)
consulting, engineering and technological information and specifications, design
data, patent rights, trade secrets, literary rights, copyrights, trademarks,
labels, trade names and other intellectual property, (iv) business records,
computer tapes and computer software, (v) goodwill and (vi) all other intangible
personal property, whether similar or dissimilar to the foregoing.
"Governmental Authority" means any government or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality of either, or any court, tribunal, grand jury or
arbitrator, in each case whether foreign or domestic.
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<PAGE>
"Gross Revenues" means all moneys, accounts, receipts,
revenues, income and other moneys received by or on behalf of the Mortgagor from
all sources, including without limitation, the operation, ownership and leasing
of the Facility, and including, without limitation, any revenues received from
the proceeds of any dispositions or financings and all rights to receive the
same whether in the form of accounts receivable, contract rights, chattel paper,
instruments or other rights and the proceeds thereof, and any insurance proceeds
and condemnation awards therefrom to the extent provided in the Agreement or
this Mortgage, whether now existing or hereafter coming into existence and
whether now owned or held or hereafter acquired by the Mortgagor.
"Highest Lawful Rate" means the maximum legal rate of interest
which the Mortgagee is legally entitled to charge, contract for or receive under
any law to which such interest is subject.
"Impositions" means (i) all real estate and personal property
taxes, charges, assessments, excises and levies, and any interest, costs or
penalties with respect thereto, general and special, ordinary or extraordinary,
foreseen and unforeseen, of any kind and nature whatsoever which at any time
prior to or after the execution hereof may be assessed, levied, charged or
imposed upon or with respect to the Mortgaged Property or the ownership, use, or
occupancy or enjoyment thereof, or any portion thereof, or the sidewalks,
streets or alleyways adjacent thereto; (ii) any charges, fees, licenses,
payments or other sums payable for any easement, license or agreement maintained
for the benefit of the Mortgaged Property; and (iii) all water, gas, sewer,
electricity, telephone, garbage collection and other utility charges, rents and
fees appurtenant to or used in connection with the Mortgaged Property which if
unpaid, would become a lien on the Mortgaged Property.
"Land" means the leasehold interest in the real property
described in Exhibit A to this Mortgage granted pursuant to the Lease upon which
the Project will be completed.
"Lease" means the Lease Agreement dated as of November 29,
1984, as the same may be amended or supplemented from time to time.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, as well as the interest of a vendor or lessor under any conditional sales
agreement, capital lease or other title retention agreement relating to such
asset.
"Mortgaged Property" means the Mortgagor's interest in the
Facility, Fixtures, Gross Revenues, Personalty, General Intangibles, and Rents,
together with all betterments, improvements, additions, alterations and
appurtenances, substitutions, replacements and reversions thereof and thereto
and all reversions and remainders therein and any and all other security and
collateral of every nature whatsoever, now or hereafter given for the
performance and discharge of the amounts due under the Agreement. As used in
this Mortgage, the term Mortgaged Property is
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<PAGE>
expressly defined as meaning all or, where the context permits or requires, any
portion of or interest in the Facility, Fixtures, Gross Revenues, Personalty,
General Intangibles, or Rents.
"Permitted Encumbrances" means, as of any particular time, (a)
liens for taxes and special assessments not then delinquent, and any tax,
assessment or judgment liens so long as the validity thereof is being contested
by the Mortgagor in good faith and by appropriate legal proceedings and
execution or sale of the property in question is stayed during the pendency of
such contest, (b) this Mortgage or the liens or encumbrances arising hereunder,
(c) utility, access and other easements and rights-of-way, encroachments and
exceptions which are listed on the title report, (d) the liens arising pursuant
to the Senior Credit Agreement (as defined in the Indenture) and (e) the
encumbrances permitted by the Agreement.
"Person" means and includes any individual, sole
proprietorship, partnership, joint venture, trust, unincorporated organization,
association, corporation, institution, entity, party or government (whether
national, federal, state, county, city, municipal, or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Personalty" means all of the right, title and interest of the
Mortgagor in and to all inventory, or refundable, returnable or reimbursable
fees, deposits or other funds or evidences of credit or indebtedness deposited
by or on behalf of the Mortgagor with any Governmental Authority, boards,
corporations, providers of utility services (public or private), including
specifically, but without limitation, all refundable, returnable or reimbursable
tap fees, utility deposits, commitment fees and development costs and all other
personal property, including furniture, furnishings, equipment, machinery,
building materials and goods (other than the Fixtures) of any kind or character
as defined in and subject to the UCC and which are now or hereafter located or
to be located upon, within or about the Facility, or which are now being or may
hereafter be used upon, within or about the Facility or which are in any way
related to the ownership, use, leasing, maintenance, repair, alteration,
reconstruction or operation of the Facility, together with all accessions,
replacements and substitutions thereto or therefor and the proceeds thereof.
"Proceeds" means with respect to any property insurance
payment or condemnation award, the amount remaining therefrom after payment of
all expenses incurred in the collection thereof.
"Rents" means all leases, oil, gas or other mineral royalties,
bonuses and rental income, rentals, earnings, income, receipts, revenues, issues
and profits, including, without limitation, insurance, in each case pertaining
to the Mortgaged Property, and all of the Mortgagor's right, title and interest
in and to any awards, settlements or compensation heretofore made or hereafter
to be made by any Governmental Authority for the Mortgaged Property including
through eminent domain or condemnation and those from any vacation of, or any
change of grade in or to any streets affecting the Facility or which may be
received or receivable by the Mortgagor from any hiring, using, letting,
leasing, subhiring, subletting or subleasing of or otherwise from the whole or
any portion or portions of the Facility at any time while any portion of the
amounts due under the Agreement secured hereby remains unpaid.
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<PAGE>
"UCC" means the Uniform Commercial Code in effect in the State
of New Jersey.
Section 1.03. Interpretations. The table of contents and
article and section headings of this Mortgage are for reference purposes only
and shall not affect its interpretation in any respect. Except where the context
otherwise requires, words imparting the singular number shall include the plural
number and vice versa.
Section 1.04. References, etc. Any reference in this Mortgage
to a document or instrument shall mean such document or instrument and all
exhibits thereto, as amended or supplemented from time to time. Any reference in
this Mortgage to any Person as a party to any document or instrument shall
include its successors and assigns to such status and in the case of the
Mortgagor shall also include its subsidiaries, if any, which are permitted or
required under generally accepted accounting principles to be consolidated with
the Mortgagor in its financial statements.
Section 1.05. Incorporation of Certain Definitions by
Reference. Each capitalized term used herein and not otherwise defined herein
shall have the meaning provided therefor in the Indenture or the Agreement.
Section 1.06. Accounting Terms and Determinations:
Incorporation of UCC Definitions. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements required to be delivered
hereunder shall be prepared in accordance with generally accepted accounting
principles as in effect from time to time, applied on a consistent basis. Except
as otherwise defined or indicated by the context herein, all terms which are
defined in the UCC shall have their respective meanings as used in Article 9 of
the UCC.
-6-
<PAGE>
ARTICLE II
GRANT OF INTEREST AND ASSIGNMENT OF MORTGAGE
Section 2.01. Grant of Interest. For the purpose of securing
the payment, performance and discharge of the amounts due under the Agreement,
the Mortgagor does hereby irrevocably GIVE, TRANSFER, GRANT, BARGAIN, SELL,
ASSIGN, MORTGAGE, CONVEY AND WARRANT to the Mortgagee all of the Mortgagor's
estate, right, title and interest in and to the Lease and the leasehold interest
created thereby and the Mortgaged Property, whether now owned or held or
hereafter acquired by the Mortgagor to have and to hold the Mortgaged Property
unto the Mortgagee, its successors and assigns forever, and the Mortgagor does
hereby bind itself, its successors and assigns, at its sole expense, to warrant
and forever defend the title to the Mortgaged Property unto the Mortgagee
against every Person whomsoever lawfully claiming or to claim the same or any
part thereof; provided that the Mortgagor shall be permitted to grant or to
continue to exist any Permitted Encumbrances; provided further, however, that if
the Mortgagor shall pay or cause to be paid the amounts due under the Agreement
as and when the same shall become due and payable and shall perform and
discharge or cause to be performed and discharged the amounts due under the
Agreement on or before the date the same are to be performed and discharged,
then this Mortgage and the estate and rights granted hereby shall be null and
void, otherwise to remain in full force and effect.
Section 2.02. Assignment of Mortgage. The Mortgagee will
assign this Mortgage to the Trustee pursuant to the Indenture. The Mortgagor
consents to said assignment and agrees to pay directly to the Trustee amounts
due to the Trustee under this Mortgage without any defense, set off or
counterclaim arising out of any default on the part of the Mortgagee under this
Mortgage or any transaction between the Mortgagor and the Mortgagee. The
Mortgagor agrees that the Trustee may exercise all rights granted to the
Mortgagee hereunder, subject to the Mortgagee's retention of rights as described
in the Indenture, for so long as no Event of Default by the Mortgagee has
occurred and is continuing.
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Mortgagor hereby unconditionally warrants and represents
to the Mortgagee (which representations and warranties will survive the creation
and performance of the Mortgagor's obligations hereunder) as follows:
Section 3.01. Warranties of Title.
(a) The Mortgagor has good and marketable title to the
Mortgaged Property, free and clear of every Lien, other than the Permitted
Encumbrances;
(b) The Mortgagor is lawfully and indefeasibly seized with a
leasehold interest , in the Land, and has full corporate power to grant, convey
and mortgage the Mortgaged Property to the Mortgagee;
(c) The Mortgagor will forever warrant and defend the title to
the Mortgaged Property unto the Mortgagee against the claims and demands of all
Persons whomsoever except those claiming under the Permitted Encumbrances; and
(d) The Mortgagor has not entered into any sales agreement,
option, assignment, sublease, pledge, mortgage, deed of trust, financing
statement, security agreement or any other arrangement regarding the Mortgaged
Property apart from the Agreement and Permitted Encumbrances.
Section 3.02. Lien of this Mortgage. This Mortgage constitutes
a valid and subsisting first mortgage lien on the Mortgagor's leasehold interest
in the Facility, a valid and subsisting first security interest in the Equipment
of the Mortgagor financed with the proceeds of the Bonds and a valid and
subsisting subordinate security interest in and to the Gross Revenues, Fixtures,
Personalty in accordance with the terms hereof.
Section 3.03. Financings. The only financings secured by the
Mortgaged Property are the Bonds and the Agreement and those executed in
connection with Permitted Encumbrances.
Section 3.04. Impositions and Other Payments. The Mortgagor
has filed all ad valorem tax returns required to be filed by the Mortgagor by
all Governmental Authorities having jurisdiction over the Mortgaged Property and
has paid all other Impositions which have become due pursuant to such returns or
pursuant to any assessments received by the Mortgagor and the Mortgagor knows of
no basis for any additional assessment against the Mortgaged Property in respect
of any Impositions. The Mortgagor shall pay all Impositions not later than their
respective due dates, and not later than ten (10) days after such dates shall
produce to the Mortgagee, if so requested, receipts for the payment thereof. The
Mortgagor has paid or will pay in full when due (except for such retainages as
may be permitted or required by any Governmental Authority or by the terms of
any applicable construction or related contract to be withheld by the Mortgagor
-8-
<PAGE>
pending completion of the Project), all sums owing for labor, material,
supplies, personal property (whether or not forming a Fixture hereunder) and
services of every kind and character used, furnished or installed in or on the
Mortgaged Property.
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<PAGE>
ARTICLE IV
COVENANTS AND OBLIGATIONS OF THE MORTGAGOR
To protect and maintain the security of this Mortgage, in
addition to the covenants set out in the Agreement, the Mortgagor
unconditionally covenants with the Mortgagee as follows, which covenants are,
according to their terms, of the essence hereof and will survive the delivery of
this Mortgage:
Section 4.01. Defects in Title. The Mortgagor will proceed
with diligence to correct any defect in title to the Mortgaged Property, should
any such defect be found to exist after the execution and delivery of this
Mortgage, and in this connection, should it be found after the execution and
delivery of this Mortgage, that there exists upon the Mortgaged Property any
Lien (other than a Permitted Encumbrance), equal, inferior, or superior in rank
or priority to the lien and security interests created by this Mortgage (other
than the Permitted Encumbrances), or should any such Lien hereafter arise, then,
unless the Mortgagee shall have given specific prior written consent to the
creation or continuation thereof (other than Permitted Encumbrances), the
Mortgagor will promptly discharge and remove any such Lien from the Mortgaged
Property. The Mortgagor further agrees that the Mortgagee may take any action
the Mortgagee deems advisable to protect and preserve its interest in the
Mortgaged Property and, in such event, the Mortgagor will indemnify the
Mortgagee against any and all reasonable costs, including reasonable attorneys'
fees, and other expenses which the Mortgagee may incur in defending against any
such adverse claims after providing notice thereof to the Mortgagor.
Section 4.02. Maintenance and Repair. The Mortgagor shall, at
its own expense, do or cause to be done all things necessary to preserve and
keep in full repair, working order and efficiency all of the Mortgaged Property,
as provided in the Agreement.
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<PAGE>
ARTICLE V
EVENTS OF DEFAULT; REMEDIES
Section 5.01. Event of Default.
(a) Any of the following events shall be considered an Event
of Default under this Mortgage:
(i) the Mortgagor shall fail to make any payment
required under the Agreement when the same shall become due
and payable or shall fail to make any other payment required
under this Mortgage within 30 days of when the same shall
become due and payable; or
(ii) if an Event of Default shall occur and be
continuing hereunder or under the Agreement or the Indenture;
or
(iii) the Mortgagor shall violate or fail to perform
any term, covenant, condition or agreement set forth in or
arising under this Mortgage and such failure continues for 30
days after the Mortgagee gives the Mortgagor written notice
thereof; provided however, that if such performance requires
work to be done, actions to be taken, or conditions to be
remedied, which by their nature cannot reasonably be done,
taken or remedied, as the case may be, within such 30-day
period, no Event of Default shall be deemed to have occurred
or to exist if, and so long as, the Mortgagor shall commence
such performance within such 30-day period and it shall
diligently and continuously prosecute the same and such breach
is remedied within 90 days after written notice thereof is
given; provided that the Mortgagor may have such longer period
to remedy any such breach as may be permitted with the consent
of the Mortgagee.
(b) Should an Event of Default occur hereunder, in addition to
all rights and remedies hereinafter described, the Mortgagee shall become and be
entitled to, as of right, without notice and without regard to the adequacy of
the Mortgaged Property as security for the payments due under the Agreement
hereby secured:
(i) proceed in an action at law, suit in equity or
any other appropriate proceedings and enforce the rights of
this Mortgage, whether by the foreclosure of the Lien of this
Mortgage or for the specific performance of any agreement
contained herein, or for an injunction against the violation
of any of the terms hereof;
(ii) exercise any and all other rights and remedies
afforded to the Mortgagee in and against the Mortgaged
Property or the Mortgagor by applicable law, including the
UCC; and
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(iii) exercise any or all other rights, remedies or
recourses at law, in equity, or set forth in this Mortgage,
the Agreement, the Intercreditor Agreement, the Landlord
Agreement, the Senior Credit Agreement or the Indenture.
Section 5.02. Remedies. If an Event of Default shall occur as
provided in Section 5.01 hereof, the Mortgagee, or an attorney or agent for the
Mortgagee, without bringing any action or proceeding, or by a receiver to be
appointed by a court in any appropriate action or proceeding, may do all or any
of the following, subject to the terms of the Agreement, the Intercreditor
Agreement, the Landlord Agreement and the Indenture:
(a) Subject to the requirements of any Governmental Authority
having jurisdiction over the Project, enter upon and take exclusive possession
of the Mortgaged Property or any part thereof, including all books, records and
accounts relating thereto;
(i) do any and all acts which the Mortgagee deems
proper to protect the security hereof, including, for the
account of the Mortgagor, making all payments the Mortgagor is
obligated to make under the Agreement;
(ii) cause the construction or completion of
construction of the Project or any Capital Addition;
(iii) enter into the Mortgaged Property without being
liable for any prosecution or damages therefor and may
dispossess the Mortgagor and may lease the Mortgaged Property
or any part thereof to another party for a term which may
extend beyond the term of the Agreement and receive the rent
therefor, upon such terms as shall be satisfactory to the
Mortgagee and in accordance with the requirements of any
applicable Governmental Authority;
Such entry by the Mortgagee shall not operate to release the
Mortgagor from any sums to be paid or covenants to be
performed under the Agreement during the full term thereof. In
addition, the Mortgagor agrees that the receipt of rents,
awards, and any other moneys or evidences thereof, and any
disposition of the same by the Mortgagee shall not constitute
a waiver of the right of foreclosure and sale of the Mortgaged
Property by the Mortgagee in the case of an Event of Default.
For the purpose of leasing the Mortgaged Property to another
party, the Mortgagee shall be authorized to make such repairs
or alterations in or to the Mortgaged Property as the
Mortgagee may deem necessary to place the same in good order
and condition. The Mortgagor shall be liable to the Mortgagee
for the cost of such repairs or alterations and all expenses
of such leasing. If the sum realized or to be realized from
the leasing is insufficient to satisfy the sum payable by the
Mortgagor under the Agreement, the Mortgagee, at its option,
may require the Mortgagor to pay such deficiency month by
month, or may hold the Mortgagor liable in advance for the
entire deficiency to be realized during the term of the
leasing of the Mortgaged Property. Notwithstanding such entry
by the Mortgagee, the Mortgagor agrees that it shall not
discontinue or take any action to cause the discontinuance of
any utility
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service (including heat) furnished to the Mortgaged Property
prior to such entry and the Mortgagor further agrees any such
utility service shall continue to be furnished to the
Mortgaged Property at the expense of the Mortgagor.
(iv) perform any and all conditions and undertakings
of any agreement or commitment entered into between the
Mortgagor and any Person, including the Mortgagee, provided,
however, that if the Mortgagor retains possession of all or
any part of the Mortgaged Property after an Event of Default
and without the Mortgagee's prior written consent thereto, the
Mortgagee may invoke any and all legal remedies to dispossess
the Mortgagor available to the Mortgagee by applicable law;
provided that the foregoing shall not be construed to impose
any greater obligation or any prerequisites to acquiring
possession of the Mortgaged Property after an Event of Default
than would have existed in the absence of such sentence; and
(b) Either with or without taking possession of the Mortgaged
Property, either by itself or by any other Person, in such manner, for such time
and upon such terms that the Mortgagee may deem to be prudent or reasonable
under the circumstances (making such repairs, alterations, additions and
improvements thereto and taking any and all other action with reference thereto
from time to time as the Mortgagee may deem necessary or desirable), hold,
lease, manage, operate or otherwise use or permit the use of the Mortgaged
Property and collect and receive the Rents, including accrued and unpaid Rents,
issue binding receipts therefor, and apply the same, less costs of operation and
collection (including, but not limited to, the reasonable costs, expenses and
fees of a receiver, if any), upon the payments to be made under the Agreement
secured by this Mortgage. The receipt by the Mortgagee of any Rents, pursuant to
the foregoing, whether prior to or during the pendency of sale proceedings under
this Mortgage, shall not cure such default, nor affect said notice or
proceedings or any sale pursuant thereto, but such Rents, less costs as
aforesaid, shall be applied in reduction of the payments to be made under the
Agreement; and
(c) The Mortgagee may commence foreclosure proceedings on all
or any portion of the real property comprising a part of the Mortgaged Property,
or on any interest in any part thereof it selects, by statutory power of sale or
action brought in its own name as plaintiff in a court of competent
jurisdiction, in the manner provided by law, and the filing of a complaint to
foreclose the same, to the extent permitted by applicable law, shall be
conclusive notice of the due exercise of such option; or the Mortgagee may
execute and deliver to the Mortgagor written notice of such breach, default or
other Event of Default and of its election to cause this Mortgage to be
foreclosed by action to be brought by the Mortgagee as plaintiff in a court of
competent jurisdiction in the manner provided by law, as aforesaid; and
thereafter the Mortgagee shall bring such action. In case of any sale under this
Mortgage, whether by judicial proceedings or otherwise, the Mortgaged Property
(and Mortgagor's interest therein) may be sold in one parcel and as an entirety
or in such parcels (or interests), manner or order as the Mortgagee in its sole
discretion may elect. In the event of foreclosure of this Mortgage by action
brought by the Mortgagee as aforesaid, there shall also be, and is, secured
hereby, the payment of all reasonable costs and expenses, including, without
limitation, cost of search or other evidence of insurance of title, for the
benefit and protection of the Mortgagee, and attorneys' fees and expenses
(including attorneys'
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fees and expenses on appeal or arising out of any action in bankruptcy) in a
reasonable sum to be fixed by the court in any such action brought to foreclose
the same, whether such foreclosure action progresses to judgment or not; and the
filing of a complaint in any such action shall render due and payable by the
Mortgagor such cost of search or evidence of insurance of title and attorneys'
fees.
Section 5.03. Application of Proceeds. The proceeds of any
sale of the Mortgaged Property shall be applied by the Mortgagee (or the
receiver if one is appointed) to the extent that funds are so available to the
following or in such order of priority that the Mortgagee, in its sole
discretion may determine, subject to the requirements of State law:
(a) First, to pay all costs and expenses incident to such
sale, including, without limitation, all costs, charges, reasonable attorneys',
accountants', brokers' and appraisers' fees and expenses of the Mortgagee
incident to such sale, including, but not limited to, the fees and other costs
herein provided for, to pay all monies advanced by or on behalf of the Mortgagee
for the payment of the Impositions, insurance premiums or other payments in
connection with the maintenance and protection of any part of the Mortgaged
Property to the Mortgagee, with interest thereon at the Default Rate and to pay
a commission or fee to the court official or other person making the sale, equal
to the commission or fee allowed for making sales of property under applicable
law or decree of the equity court having jurisdiction, if any, in the event of
the judicial foreclosure of this Mortgage;
(b) Second, to pay the cost of any search and other evidence
of insurance of title procured for the benefit of the Mortgagee in connection
with such sale and documentary stamps on the Mortgagee's deed, if applicable;
and
(c) Third, to pay the amounts due under the Agreement.
Section 5.04. Delivery of Possession. Any sale or sales of the
Mortgaged Property, or any part thereof, under or by virtue of judicial
proceedings, regardless of the price paid for the Mortgaged Property or any part
thereof, shall, to the extent permitted by applicable law, operate to divest all
right, title, interest, claim and demand whatsoever, either at law or in equity,
of the Mortgagor of, in and to the Mortgaged Property and the property sold, and
shall be a perpetual bar, both at law and equity, against the Mortgagor, its
successors and assigns and against any and all Persons claiming or who shall
thereafter claim all or any portion of the property sold from, through, or under
the Mortgagor, its successors or assigns and the Mortgagor, if requested by the
Mortgagee so to do, shall join in the execution and delivery of all property
conveyances, assignments, and transfers of the property so sold. The rights of
the Mortgagee to possession or for a receiver are of the essence hereof, and
shall continue during the running of the period allowed by law for the
reinstatement of the amounts due under the Agreement secured hereby and
thereafter until sale of the Mortgaged Property. The Mortgagor hereby expressly
waives and relinquishes any and all rights the Mortgagor may have by statute or
otherwise to the possession of said Mortgaged Property and the Rents during
pendency of a sale or foreclosure of this Mortgage. The Mortgagor agrees for
itself and any and all Persons claiming by, through or under the Mortgagor that
if the Mortgagor shall hold possession of the Mortgaged Property or any part
thereof subsequent to sale
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or foreclosure hereunder, the Mortgagor, or the parties so holding possession,
shall become and be considered as tenants at will of the purchaser or purchasers
of such foreclosure sale; and any such tenant failing or refusing to surrender
possession upon demand shall be guilty of forcible detainer and shall be liable
to such purchaser or purchasers for reasonable rental on said Mortgaged Property
and shall be subject to eviction and removal, forcible or otherwise, with or
without process of law, damages which may be sustained by the Mortgagor or any
such tenant as a result thereof being hereby expressly waived.
Section 5.05. Appointment of Receiver. Prior to, upon or at
any time after commencement of foreclosure of the Lien and security interest
provided for herein or any legal proceedings hereunder, the Mortgagee shall have
the right, to the extent permitted by applicable law, to make an application to
a court of competent jurisdiction, as a matter of strict right and without
notice to the Mortgagor, for the appointment of a receiver of the Mortgaged
Property and the Mortgagor hereby irrevocably consents to such an appointment.
Any such receiver shall have all the usual powers and duties of receivers in
similar cases including the full power to maintain and operate the Mortgaged
Property upon such terms as may be approved by the court and any applicable
Governmental Authority.
Section 5.06. Remedies Cumulative, Concurrent and
Non-Exclusive. The Mortgagee shall have all the rights, remedies and recourses
granted herein, in the Agreement and as available at law or equity (including
specifically those granted by the UCC), and the same:
(a) shall be cumulative and concurrent;
(b) may be pursued separately, successively or concurrently
against the Mortgagor, or against the Mortgaged Property, at the sole discretion
of the Mortgagee;
(c) may be exercised as often as occasion therefor shall
arise, it being agreed by the Mortgagor that the failure to exercise any of same
shall in no event be construed as a waiver or release thereof or of any other
right, remedy or recourse of the Mortgagee; and
(d) are intended to be, and shall be, non-exclusive.
Section 5.07. No Conditions Precedent to Exercise of Remedies.
The Mortgagor will not be relieved from the payment of the amounts due under or
fulfillment of the conditions of the Agreement by reason of:
(a) the failure of the Mortgagee to comply with any request of
the Mortgagor, or any other Person so obligated to enforce any provisions of the
Agreement;
(b) the release, regardless of consideration, of the Mortgaged
Property or the addition of any other property to the Mortgaged Property;
(c) any agreement or stipulation between any subsequent owner
of the Mortgaged Property and the Mortgagee extending, renewing, rearranging or
in any other way
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modifying the terms of the Agreement without first having obtained the consent
of, given notice to, or paid any consideration to the Mortgagor, who, in such
event, shall continue to be liable to make payment according to the terms of any
such extension or modification agreement unless expressly released and
discharged in writing by the Mortgagee; or
(d) any other act or occurrence, save and except the complete
payment and satisfactory fulfillment of all of the amounts due under the
Agreement.
Section 5.08. Extension, Rearrangement or Renewal of the
Amounts Due under the Agreement. It is expressly agreed that any of the amounts
due under the Agreement which are secured hereby may be from time to time
extended for any period, rearranged, modified, or renewed and that any part of
the security herein described, or any other security for the amounts due under
the Agreement, may be waived or released without in any way altering, varying or
diminishing the force, effect or Lien of this Mortgage; and the Lien and
security interests granted by this Mortgage shall continue as a prior Lien on
and security interest in all of the Mortgaged Property not expressly so
released, until all sums with interest and charges hereby secured are fully
paid; and no other security now existing or hereafter taken to secure the
payment of the amounts due under the Agreement or any part thereof or the
performance of any obligation or liability whatsoever shall in any manner impair
or affect the security given by this Mortgage and all security for the payment
of the amounts due under the Agreement or any part thereof and the performance
of any obligation or liability shall be taken, considered and held as
cumulative.
Section 5.09. Waiver of Redemption, Notice and Marshalling of
Assets. To the fullest extent permitted by applicable law, the Mortgagor hereby
irrevocably and unconditionally waives and releases:
(a) all benefits that might accrue to the Mortgagor by virtue
of any present or future law exempting the Mortgaged Property from attachment,
levy or sale on execution or providing for any appraisal, valuation, stay of
execution, exemption from civil process, redemption or extension of time for
payment;
(b) except as expressly provided herein or in the Agreement,
all notices of any Event of Default or of the Mortgagee's election to exercise
or the Mortgagee's actual exercise of any right, remedy or recourse provided for
hereunder or under the Agreement;
(c) any right to a marshalling of assets, right to direct the
order in which such property, if consisting of several known lots or parcels,
shall be sold, or right to a sale in inverse order of alienation; and
(d) the pleading of any statute of limitations as a defense to
any and all amounts due under the Agreement secured by this Mortgage;
and covenants not to hinder, delay or impede the execution of any power herein
granted or delegated to the Mortgagee, but to suffer and permit the execution of
every power as though no such law or laws had been made or enacted.
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Section 5.10. Repayment of Expenses. Repayment of all expenses
incurred by the Mortgagee hereunder or payments made by the Mortgagee on behalf
of the Mortgagor hereunder, or under the Agreement, together with interest
thereon shall be secured by this Mortgage; following the occurrence of an Event
of Default, interest thereon shall be at the Default Rate.
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ARTICLE VI
SECURITY AGREEMENT
Section 6.01. Security Agreement. To the extent that the
Mortgaged Property may be subject to the UCC, this Mortgage shall also
constitute and serve as a security agreement on personal property within the
meaning of, and shall constitute a security interest under, the UCC with respect
to the Mortgaged Property which is subject to the UCC, including without
limitation, the Gross Revenues, Personalty, General Intangibles, Fixtures, and
Rents associated with the Project (collectively, the "Collateral"). To this end,
the Mortgagor has GRANTED, BARGAINED, CONVEYED, ASSIGNED, TRANSFERRED and SET
OVER and by these presents does GRANT, BARGAIN, CONVEY, ASSIGN, TRANSFER and SET
OVER unto the Mortgagee a security interest in all of the Mortgagor's right,
title and interest in, to and under all Fixtures and all of the other Mortgaged
Property not constituting real property under the laws of the State of New
Jersey to secure the full and timely payment and the full and timely performance
and discharge of the amounts due under the Agreement. Subject to the terms of
the Intercreditor Agreement and the Landlord Agreement, upon any Event of
Default of the Mortgagor hereunder, the Mortgagee shall be entitled to exercise
with respect to the Collateral all of the rights and remedies set forth herein
and in the Agreement or otherwise afforded to a secured party under the terms of
the UCC, any or all of which remedies or rights may be pursued and exercised
concurrently, consecutively, alternatively or otherwise. The Mortgagor will
execute, file and refile, at the sole cost and expense of the Mortgagor, one or
more supplemental security agreements and financing statements as the Mortgagee
may from time to time require covering any property now or hereafter
constituting a portion of the Mortgaged Property securing the amounts due under
the Agreement secured hereunder and such financing statements and other and
further assurances as the Mortgagee may request to perfect or evidence the
security interest herein created and to particularize and identify the
Collateral. The Mortgagor hereby authorizes the Mortgagee to file such financing
statement or statements pursuant to the UCC, without the signature of the
Mortgagor, as the Mortgagee may deem necessary, to perfect such interests or
right in its favor. It is the intent of the Mortgagor and the Mortgagee that
this Mortgage encumber all Rents and as to all items contained in the definition
of Rents which are included in the UCC, be covered by the security interests
granted in this Article VI and that all items contained in the definition of
Rents which are excluded from the UCC be covered by the provisions of Article II
and Article VII hereof.
Section 6.02. Fixture Filing. This Mortgage shall also
constitute a UCC financing statement (the "Fixture Filing") for all Personalty
or Fixtures, now or hereafter so affixed by or on behalf of the Mortgagor to the
Mortgaged Property so that such becomes a fixture in accordance with the UCC.
Information containing the security interest herein granted may be obtained at
the addresses set forth herein. The address of the Mortgagee as the "Secured
Party" and the address of the Mortgagor as the "Debtor" are the addresses set
forth in Section 9.07 hereof.
Section 6.03. Security Agreement: Remedies. If an Event of
Default shall occur, the Mortgagee may, subject to the terms of the
Intercreditor Agreement and the Landlord
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Agreement, in addition to exercising any and all other rights, remedies and
recourses set forth in Article V hereof, take any or all of the following
actions without notice to the Mortgagor (except where expressly required below
or in the Agreement):
(a) Declare all or part of the amounts due under the Agreement
immediately due and payable in accordance with the terms of the Indenture, and
enforce payment and performance of the same by the Mortgagor;
(b) Proceed in the manner set forth in the applicable
provision of the UCC relating to the procedure to be followed when a security
agreement covers both real and personal property;
(c) Take possession of the Collateral, or at the Mortgagee's
request, the Mortgagor shall, at the Mortgagor's cost, assemble the Collateral
and make it available at a location to be specified by the Mortgagee which is
reasonably convenient to the Mortgagor and the Mortgagee. In any event, the risk
of accidental loss or damage to, or diminution in value of, the Collateral shall
be on the Mortgagor, and the Mortgagee shall have no liability whatsoever for
failure to obtain or maintain insurance, nor to determine whether any insurance
ever in force is adequate as to amount or as to risk insured;
(d) Sell, in one or more sales and in one or more parcels, or
otherwise dispose of any or all of the Collateral in any commercially reasonable
manner as the Mortgagee may elect, in a public or private transaction, at any
location as deemed reasonable by the Mortgagee either for cash or credit or for
future delivery at such price as the Mortgagee may deem fair, and unless
prohibited by the UCC, the Mortgagee may be the purchaser of any or all
Collateral so sold and may apply upon the purchase price therefor any amounts
due under the Agreement secured hereby;
Any sale pursuant to this paragraph (d) shall be upon at least
five days notice to the Mortgagor, which the Mortgagor agrees is reasonable. Any
such sale or transfer by the Mortgagee either to itself or to any other Person
shall be absolutely free from any claim or right by the Mortgagor, including any
equity or right of redemption, stay or appraisal which the Mortgagor has or may
have under any rule of law, regulation or statute now existing or hereafter
adopted. Upon any such sale or transfer, the Mortgagee shall have the right to
deliver, assign and transfer to the purchaser or transferee thereof the
Collateral so sold or transferred. It shall not be necessary that the Collateral
or any part thereof be present at the location of any such sale or transfer. The
Mortgagee may, at its discretion, provide for a public sale, and any such public
sale shall be held at such time or times within ordinary business hours and at
such place or places as the Mortgagee may fix in the notice of such sale. The
Mortgagee shall not be obligated to make any sale pursuant to any such notice.
The Mortgagee may, without notice or publication, adjourn any public or private
sale by announcement at any time and place fixed for such sale, and such sale
may be made at any time or place to which the same may be so adjourned. In the
event any sale or transfer hereunder is not completed or is defective in the
opinion of the Mortgagee, such sale or transfer shall not exhaust the rights of
the Mortgagee hereunder, and the Mortgagee shall have the right to cause one or
more subsequent sales or transfers to be made hereunder. In the event that any
of the Collateral is sold or transferred on credit, or is to be held by the
Mortgagee for future delivery to a
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purchaser or transferee, the Collateral so sold or transferred may be retained
by the Mortgagee until the purchase price or other consideration is paid by the
purchaser or transferee thereof, but in the event that such purchaser or
transferee fails to pay for the Collateral so sold or transferred or to take
delivery thereof, the Mortgagee shall incur no liability in connection
therewith. If only part of the Collateral is sold or transferred such that the
amounts due under the Agreement remain outstanding (in whole or in part), the
Mortgagee's rights and remedies hereunder shall not be exhausted, waived or
modified, and the Mortgagee is specifically empowered to make one or more
successive sales or transfers until all the Collateral shall be sold or
transferred and all the amounts due under the Agreement are paid. In addition to
all of the rights and remedies set forth herein, the Mortgagee shall have all
the rights and remedies of a "secured party" under the UCC.
(e) Take possession of all books and records of the Mortgagor
pertaining to the Collateral. The Mortgagee shall have the authority to enter
upon the Facility in order to obtain any such books or records, or any
Collateral located thereon, and remove the same therefrom without liability;
(f) Apply the proceeds of the disposition of Collateral to the
amounts due under the Agreement in the manner and priority provided in Section
5.03 of this Mortgage. Such application may include, without limitation, the
reasonable expenses of retaking, holding, preparing for sale or other
disposition, and reasonable attorneys' fees and legal expenses incurred by the
Mortgagee (including reasonable attorneys' fees on appeal or incurred in
connection with any bankruptcy proceeding); and
(g) Appoint any party as agent to perform any act or acts
necessary or incident to any sale or transfer by the Mortgagee of the
Collateral.
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ARTICLE VII
ASSIGNMENT OF RENTS
Section 7.01. Assignment of Rents. For Ten Dollars ($10.00)
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Mortgagor has GRANTED, BARGAINED, SOLD and CONVEYED
and by these presents does GRANT, BARGAIN, SELL and CONVEY absolutely unto the
Mortgagee, the Rents subject only to Permitted Encumbrances applicable thereto
and the hereinafter referenced limited license; TO HAVE AND TO HOLD the Rents
unto the Mortgagee forever and the Mortgagor does hereby bind itself, its
successors and assigns to warrant and forever defend the title to the Rents unto
the Mortgagee against every Person whomsoever lawfully claiming or to claim the
same or any part thereof; provided, however, if the Mortgagor pays or causes to
be paid the amounts due under the Agreement as and when the same shall become
due and payable and shall perform and discharge or cause to be performed and
discharged the amounts due under the Agreement on or before the date the same
are to be performed and discharged, then this assignment of Rents shall
terminate and be of no further force and effect, and all rights, titles and
interests conveyed pursuant to this assignment of Rents shall become revested in
the Mortgagor without the necessity of any further act or requirement by the
Mortgagor or the Mortgagee.
Section 7.02. Rights of the Mortgagor's Limited License. The
Mortgagee hereby grants to the Mortgagor a limited revocable license,
non-exclusive with the rights of the Mortgagee reserved in Section 7.04 hereof
to exercise and enjoy all incidences of ownership of the Rents, including
specifically, but without limitation, the right to collect, demand, sue for,
attach, levy, recover and receive the Rents and to give proper receipts,
releases and acquittances therefor, prior to any default in the payment of any
amounts due under the Agreement secured hereby, to collect, deliver, disburse
and use all such Rents and exercise all rights under the Rents if not otherwise
restricted under the Agreement. This limited license shall be automatically
revoked without notice upon the occurrence of an Event of Default.
Section 7.03. Enforcement of Rents.
(a) So long as the limited license is in effect, the Mortgagor
shall:
(i) duly and punctually perform and comply with any
and all representations, warranties, covenants and agreements
expressed as binding upon the Mortgagor as landlord under any
lease or agreement;
(ii) maintain each of the leases or agreements in
full force and effect during the term thereof;
(iii) appear in and defend any action or proceeding
in any manner connected with any lease or agreement;
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(iv) deliver to the Mortgagee such further
information or estoppels, and execute and deliver to the
Mortgagee such further assurances and assignments, with
respect to any leases or agreements as the Mortgagee may from
time to time request; and
(v) notify the Mortgagee immediately of any default
asserted by any party (including any guarantor) under any
agreement.
(b) Without the Mortgagee's prior written consent, the
Mortgagor shall not, except as permitted in the Agreement:
(i) grant concessions, do or knowingly permit to be
done anything to impair the value of any of the leases or
agreements; or
(ii) assign or grant a security interest in or to the
limited license or any of the Rents, leases or agreements; or
(iii) receive or collect Rents from any tenant,
subtenant, undertenant, or other occupant of any part of the
Mortgaged Property, more than one month in advance of the due
date or in any amount greater than that permitted by law.
Section 7.04. Suits and Attornment. The Mortgagee hereby
reserves and may exercise the right and the Mortgagor hereby acknowledges that
the Mortgagee has the right (but not the obligation) to collect, demand, sue
for, attach, levy, recover and receive any Rents, to give proper receipts,
releases and acquittances therefor and, after deducting the expenses of
collection, to apply the net proceeds thereof as a credit upon the amounts due
under the Agreement. The Mortgagor hereby authorizes and directs any Person or
lessee of the Mortgaged Property to deliver any such payments to, and otherwise
to attorn all other obligations under any lease or agreement directly to the
Mortgagee in accordance herewith. The Mortgagor hereby ratifies and confirms all
that the Mortgagee shall do or cause to be done by virtue of this Section 7.04.
Section 7.05. Conflict. The absolute assignment contained in
this Article VII is in addition to, and not in lieu of, Article II hereof. It is
the intent of the parties that no conflict exist between the absolute assignment
contained in this Article VII and the collateral conveyance contained in Article
II hereof. However, if and to the extent such conflict is perceived to exist as
to the Rents, such conflict shall be resolved in favor of the absolute
assignment contained in this Article VII.
Section 7.06. Assignment of Rents; Remedies. Upon the
occurrence of an Event of Default, the limited license shall immediately
terminate without any notice or other further action being required of the
Mortgagee. Thereafter, the Mortgagee shall have the exclusive right, power and
authority to take any and all action in connection with the Rents, regardless of
whether a foreclosure or sale of the remainder of the Mortgaged Property has
occurred under this Mortgage or whether the Mortgagee has taken possession of
the remainder of the Mortgaged Property or attempted to do any of the same. The
Mortgagee may make such expenditures, including
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reasonable counsel fees, in connection therewith and each amount so paid or
expended with interest at the Default Rate shall become part of the amounts due
under the Agreement and be secured hereby. The Mortgagee, may, at its option,
have the right to apply to a court to have all Rents paid into a court registry
pending adjudication of the Mortgagee's rights to such Rents. No action referred
to in this Article VII taken by the Mortgagee shall constitute an election of
remedies.
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ARTICLE VIII
ENVIRONMENTAL REPRESENTATIONS AND COVENANTS
Section 8.01. Definitions. As used in this Article VIII, the
following terms shall have the following meanings:
(a) Clean-Up: Investigation, sampling, monitoring (including
the installation of monitoring wells), removal, abatement and/or remediation of,
or other response to, Environmental Conditions as required or directed by
applicable Governmental Authorities with jurisdiction therefor, or as required
by and in compliance with Environmental Laws.
(b) Environmental Conditions: Any environmental contamination
or pollution or threatened contamination or pollution of, or the Release or
threatened Release of Hazardous Substances into, surface soils, subsurface
soils, sewage systems, surface water, groundwater, land or air.
(c) Environmental Documents: (i) Any and all documents
received or submitted by the Mortgagor from the United States Environmental
Protection Agency, the New Jersey Department of Environmental Protection and/or
any state, county or municipal environmental or health agency concerning
environmental matters relating to the Mortgaged Property or the Mortgagor's
operations upon the Mortgaged Property; and (ii) any and all non-privileged
reviews, audits, reports, workplans, proposals or analyses concerning
Environmental Conditions including, but not limited to, the presence or absence
of Hazardous Substances on, at, under, emanating from, relating to or
surrounding the Mortgaged Property, that have been prepared by or on behalf of
the Mortgagor or are otherwise in the Mortgagor's possession, custody or
control.
(d) Environmental Laws: Any and all federal, state, regional
and local laws, statutes, codes, ordinances, regulations or rules (including,
but not limited to, consent decrees and judicial or administrative orders or
decrees or other legal requirements of any kind issued in connection with the
Mortgaged Property) relating to pollution or contamination of the environment,
Environmental Conditions, or the use, handling, generation, treatment, storage,
disposal, manufacture or transport of Hazardous Substances, presently in effect
or hereafter amended, modified or adopted from time-to-time during the Mortgage
term including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA" or the "Federal Superfund Act") as
amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA") (42
U.S.C. ss. 9601-9675); the Resource Conservation and Recovery Act of 1976, as
amended ("RCRA") (42 U.S.C. ss. 6901, et seq.); the Clean Water Act, as amended
(33 U.S.C. ss. 1251, et seq.); the Clean Air Act, as amended (42 U.S.C. ss.
7401, et seq.); the Federal Insecticide, Fungicide and Rodenticide Act, as
amended ("FIFRA") (7 U.S.C. ss. 136, et seq.); The Hazardous Materials
Transportation Act, as amended (49
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U.S.C. Section 1801, et seq.); the Toxic Substances Control Act (15 U.S.C. 2601,
et seq.); the New Jersey Spill Compensation and Control Act, as amended (the
"Spill Act") (N.J.S. 58:10-23.11, et seq.); the Industrial Site Recovery Act, as
amended ("ISRA") (N.J.S. 13:1K-6, et seq.); the New Jersey Solid Waste
Management Act, as amended (N.J.S. 13:1E-1, et seq.); the New Jersey Underground
Storage of Hazardous Substances Act ("New Jersey UST Act"), as amended (N.J.S.
58:10A-21, et seq.); the New Jersey Water Pollution Control Act, as amended
(N.J.S. 58:10A-1, et seq.); the New Jersey Air Pollution Control Act (N.J.S.
26:2C-1, et seq.); the Safe Drinking Water Act (33 U.S.C. 1251, et seq.); the
New Jersey Worker and Community Right to Know Act (N.J.S. 34:5A-1, et seq.); and
the New Jersey Toxic Catastrophe Prevention Act (N.J.S. 13:1-19, et seq.); and
the rules and regulations promulgated thereunder.
(e) Hazardous Substances: Any dangerous, toxic or hazardous
pollutant, contaminant, chemical, waste, material or substance as listed,
defined in or regulated under any Environmental Law, and also including, but not
limited to, urea-formaldehyde, polychlorinated biphenyls, asbestos or
asbestos-containing materials, nuclear or radioactive fuel or waste, explosives,
known carcinogens, petroleum and petroleum products and "Regulated Medical
Waste" as such term is defined at N.J.A.C. 7:26-3A.5. Notwithstanding the
foregoing, for purposes of this Article VIII, Hazardous Substances shall not
include de minimis quantities of janitorial and cleaning supplies or medical
supplies and equipment and by-product used in or resulting from the ordinary
course of Mortgagor's business in accordance with applicable law, including
Environmental Laws.
(f) Regulatory Actions: Any claim, demand, action, request for
information or proceeding brought, issued or instigated by any Governmental
Authority in connection with or under the authority of any Environmental Law,
including, without limitation, civil, criminal and/or administrative
proceedings, and whether or not directing or requiring any action or compelling
compliance with Environmental Laws or seeking costs, damages, penalties,
expenses or injunctive relief.
(g) Release: The spilling, leaking, disposing, discharging,
emitting, depositing, injecting, leaching, escaping, or threatened Release,
however defined, and whether intentional or unintentional, of any Hazardous
Substance.
(h) Third-Party Claims: Claims of third parties (other than
Regulatory Actions) alleging damages arising from personal injury, property
damage or damage to natural resources arising from or related in any way to
Environmental Conditions on, at, under, emanating from, relating to or
surrounding the Mortgaged Property.
Section 8.02. Representations and Warranties. Except as set
forth in Schedule 8.02 and except as disclosed in the Environmental Report, the
Mortgagor represents and warrants to the best of its knowledge as of the date
hereof that:
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(a) No part of the Mortgaged Property was ever used, nor is it
being used now, as a landfill, dump or other disposal, storage, or treatment
area for Hazardous Substances or as a gasoline service station or a facility
with its primary operations involving the selling, dispensing, storing,
transferring or handling of petroleum and/or petroleum products; and
(b) There are not now nor has there ever been located on the
Mortgaged Property or in the buildings at the Mortgaged Property any (i)
underground storage tanks, above ground storage tanks or any other vessels used
or intended for the treatment, storage or disposal of Hazardous Substances, or
(ii) urea-formaldehyde materials, asbestos, asbestos-containing materials,
polychlorinated biphenyls (PCBs) or nuclear fuels or wastes; and
(c) There has not been nor is there now occurring any Release
of any Hazardous Substance on, at, under or emanating from the Mortgaged
Property; and
(d) The Mortgagor's use, if any, and/or disposal, if any, of
Hazardous Substances on the Mortgaged Property and/or disposal elsewhere, if
any, of Hazardous Substances generated on or from the Mortgaged Property, has
been in material compliance with all applicable Environmental Laws; and
(e) The Mortgaged Property and the use and operation thereof
are currently, and at all times during the Mortgagor's occupancy, operation or
control of the Mortgaged Property have been, in material compliance with all
applicable Environmental Laws; and
(f) No Third-Party Claims and/or Regulatory Actions have been
asserted or assessed against the Mortgagor and/or the Mortgaged Property, and no
Third-Party Claims and/or Regulatory Actions are pending or, to the best of the
Mortgagor's knowledge, threatened against the Mortgagor and/or the Mortgaged
Property; and
(g) The Mortgaged Property is not listed in the United States
Environmental Protection Agency's National Priorities List of Hazardous Waste
Sites or the New Jersey Department of Environmental Protection's known
Contaminated Sites List, or any other similar list maintained by any federal,
state or local Governmental Authority with respect to sites from which there is
or has been a Release of any Hazardous Substance. The Mortgagor has not
transported or arranged for the transportation of any Hazardous Substances
generated from the Mortgaged Property to any location; and
(h) The Mortgagor has not received and is not in possession of
any Environmental Documents which have not been made available by Mortgagor to
the Mortgagee; and
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(i) The Mortgaged Property has not been nor is now being used
as a "Major Facility" as such term is defined in N.J.S. 58:10-23.11b. The
Mortgagor will not use the Mortgaged Property in the future as a "Major
Facility"; and
(j) There are no liens against the Mortgaged Property arising
under any Environmental Law or based upon a Regulatory Action and/or Third-Party
Claim; and further, no lien has been attached to any revenues or any real or
personal property owned by the Mortgagor including, but not limited to, the
Mortgaged Property, as a result of the Administrator of the New Jersey Spill
Compensation Fund expending monies from said fund pursuant to N.J.S.
58:10-23.11g, and/or to pay for "Cleanup and Removal Costs" as such term is
defined in N.J.S. 58:10-23.11b, arising from an intentional or unintentional
action or omission of the Mortgagor; and
Section 8.03. Covenants.
(a) The Mortgagor will not permit or conduct on the Mortgaged
Property the generation, treatment, manufacture, use, handling, storage or
disposal of any Hazardous Substance, except in compliance with all applicable
Environmental Laws. In addition, the Mortgagor will not permit the Mortgaged
Property to be used for any of the purposes set forth in Section 8.02(a) hereof.
(b) The Mortgagor will promptly notify the Mortgagee in
writing of any material existing, pending or threatened (i) investigation,
inquiry, claim, demand or action by any Governmental Authority in connection
with any Environmental Laws, (ii) Third-Party Claims, (iii) Regulatory Actions,
and/or (iv) Environmental Conditions at, on, under, emanating from, relating to
or surrounding the Mortgaged Property of which it has knowledge or notice.
(c) In the event that any Clean-Up of any Environmental
Conditions on, at, under, emanating from, relating to or surrounding the
Mortgaged Property is required to be undertaken by the Mortgagor by any
Governmental Authority or under any applicable Environmental Laws as a result of
or relating to any of the following, then the Mortgagor shall complete or cause
to be completed, at its own expense, such Clean-up: (i) any Release of any
Hazardous Substance on, at, under, emanating from, relating to or surrounding
the Mortgaged Property or the presence of any Hazardous Substance which has come
to be located on, at, under, relating to or surrounding the Mortgaged Property
from another location; (ii) any injury to human health or safety or the
environment by reason of the Environmental Condition of, or activities on or
under, the Mortgaged Property; or (iii) any violation, or alleged violation, of
any applicable Environmental Law.
(d) After the date of execution of this Mortgage, the
Mortgagor shall, upon request, make available to the Mortgagee, so long as the
Bonds are Outstanding (as defined in the Trust Indenture) and the Mortgagee has
any interest in the Mortgaged Property, complete copies of any and all
Environmental Documents.
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(e) The Mortgagor will keep the Mortgaged Property free of any
lien imposed pursuant to any Environmental Law. Without in any way limiting the
generality of the foregoing, in the event that there shall be filed a lien
against the Mortgaged Property by the New Jersey Department of Environmental
Protection, pursuant to and in accordance with the provisions of the Spill Act
(specifically, N.J.S. 58:10-23.11f(f)), as a result of the Administrator of the
New Jersey Spill Compensation Fund having expended monies from said fund
pursuant to N.J.S. 58:10-23.11g, or to pay for "Cleanup and Removal Costs," as
such term is defined in N.J.S. 58:10-23.11b, arising from an intentional or
unintentional action or omission of the Mortgagor, resulting in the Release of
"Hazardous Substances," as such term is defined in N.J.S. 58:10-23.11b, into
waters of the State of New Jersey or onto lands from which it might flow or
drain into said waters, then the Mortgagor shall, within sixty (60) days from
the date that the Mortgagor is given notice that the lien has been placed
against the Mortgaged Property (or within such shorter period of time in the
event that the State of New Jersey has commenced steps to cause the Mortgaged
Property to be sold pursuant to the lien), either (i) pay the claim and remove
the lien from the Mortgaged Property, or (ii) furnish to the Mortgagee either
(A) a bond satisfactory to the Mortgagee in the amount of the claim out of which
the lien arises, (B) a cash deposit in the amount of the claim out of which the
lien arises, or (C) other security reasonably satisfactory to the Mortgagee in
an amount sufficient to discharge the claim out of which the lien arises.
(f) In the event the Mortgagee at any time (even after the
occurrence of or during the continuance of any Event of Default under the
Agreement or this Mortgage) reasonably believes or has knowledge of any actual
or possible material violation of any Environmental Laws at the Mortgaged
Property or the presence or threatened presence of any Environmental Conditions
at, on, under, emanating from, relating to or surrounding the Mortgaged
Property, the Mortgagor shall upon the written request of the Mortgagee have an
environmental review or audit and report of the Mortgaged Property prepared for
the Mortgagee. The duty of the Mortgagor to provide an environmental review or
audit and report shall continue after the occurrence of and during the
continuance of any Event of Default under the terms of this Mortgage or the
Agreement.
(g) The Mortgagee may itself or by its employees, agents,
contractors or representatives enter upon the Mortgaged Property for the
purposes of conducting such soil, groundwater and chemical tests or other
investigations, examinations, or analyses (hereafter referred to as
"Investigation") as the Mortgagee may reasonably desire. The Mortgagee shall
provide the Mortgagor with reasonable notice before entering the Mortgaged
Property to conduct any such Investigation, and the Mortgagor shall cooperate
fully in such Investigation.
(h) The Mortgagee and its employees, agents, contractors,
consultants and/or representatives shall use reasonable efforts to conduct any
such Investigation in a manner which does not unreasonably interfere with the
Mortgagor's use of and operations
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on the Mortgaged Property, provided however that reasonable temporary
interference with such use and operations is permissible if the Investigation
cannot otherwise be reasonably and inexpensively conducted. In the event that
this Mortgage is foreclosed, the Mortgagor shall deliver the Mortgaged Property
to the Mortgagee free of all Hazardous Substances and in compliance with all
Environmental Laws.
(i) The Mortgagor shall use its best efforts to assure
compliance with all Environmental Laws by all lessees, tenants, subtenants,
occupants, licensees, operators and users of the Mortgaged Property.
Section 8.04. Indemnities.
(a) The Mortgagor agrees to, and does hereby, indemnify,
defend (with counsel reasonably acceptable to the Mortgagee) and hold harmless
the Mortgagee, the Bondholders, their directors, officers, employees and agents
(all being included in the word "Mortgagee" for the purposes of this Section
8.04(a)) from and against any and all claims, causes of action, damages,
demands, fines, liabilities, losses, penalties, settlements, expenses and/or
costs, however defined and of whatever kind or nature, known or unknown,
(including, but not limited to, reasonable attorneys', consultants' and
engineering fees and disbursements and sampling, monitoring or remediation
costs, costs to effect compliance with Environmental Laws, costs of defense and
interest) ("Losses") which may be asserted against, imposed upon, suffered or
incurred by, the Mortgagee, arising out of or in any way related to or due to
(i) the Release of any Hazardous Substances at the Mortgaged Property or any
Environmental Conditions on, at, under, emanating from, relating to or
surrounding the Mortgaged Property, (ii) any injury to human health, safety or
the environment (including wrongful death, personal injury, property damage or
damage to natural resources) by reason of Environmental Conditions, or
activities past or present, on, at, under, emanating from, relating to or
surrounding the Mortgaged Property; (iii) any violation, or alleged violation,
of any Environmental Law; (iv) any material misrepresentation by the Mortgagor
which relates to Environmental Conditions in this Mortgage and/or the Agreement
or in any other documents or materials furnished by the Mortgagor to the
Mortgagee and/or its representatives in connection with the issuance of the
Bonds; (v) any breach of any representation or warranty set forth in Section
8.02 hereof; (vi) any breach of, or other failure to comply with, or any default
after expiration of applicable grace and cure periods under, any provision of
Section 8.03 of this Mortgage; (vii) any Regulatory Action or Third-Party Claim
arising from or relating to any Release or any Environmental Conditions on, at,
under, emanating from, relating to or surrounding the Mortgaged Property, except
to the extent such Regulatory Action or Third-Party Claim arises from or relates
to the negligent acts or omissions of the Mortgagee (including its agents) or
its successors or assigns including any transferee of the title of the Mortgagee
or any subsequent purchaser at a foreclosure; or (viii) any lien imposed upon
the Mortgaged Property in favor of any Governmental Authority as a result of the
presence, disposal or Release of Hazardous Substances or any other Environmental
Conditions on, at, under, emanating from, relating to or surrounding the
Mortgaged Property. The duty of the Mortgagor to indemnify, defend, and hold
harmless
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the Mortgagee includes, but is not limited to, proceedings or actions commenced
by any person (including, but not limited to, any Governmental Authority or
entity) before any court or administrative agency. The Mortgagee also shall have
the right to join and participate in, if it so elects, any legal proceedings or
actions initiated in connection with any Losses and to have its reasonable
attorneys' fees and expenses in connection therewith paid by the Mortgagor.
(b) If the Mortgagor fails to initiate and diligently pursue
to completion any Clean-Up required at or with respect to the Mortgaged Property
by any Governmental Authority or under any applicable Environmental Laws and
such failure continues for thirty (30) days after the Mortgagee provides the
Mortgagor written notice thereof (provided however, that if such Clean-Up
requires work to be done, actions to be taken or conditions to be remedied which
by their nature cannot be fully done, taken or remedied, as the case may be,
within such thirty (30) day period, then no such failure shall be deemed to have
occurred with respect to any such work, actions or remediation so long as the
Mortgagor commences performance of any such work, actions or remediation within
such thirty (30) day period and thereafter diligently and continuously
prosecutes same to completion), the Mortgagee may, in its sole discretion, (i)
upon prior written notice to the Mortgagor, cause the Clean-Up of any Hazardous
Substance or other Environmental Conditions on, at, under, emanating from,
relating to or surrounding the Mortgaged Property; (ii) pay on behalf of the
Mortgagor any Losses imposed on the Mortgagor as a result of any Regulatory
Actions; (iii) make any other payment or perform any other reasonable act which
will prevent a Lien in favor of any Governmental Authority from attaching to the
Mortgaged Property; or (iv) pay, on behalf of the Mortgagor, any Losses imposed
on the Mortgagor as a result of any Third-Party Claims or any one or more of the
foregoing. The costs of such Clean-Up and/or exercise of the remedies
hereinabove set forth by the Mortgagee shall be added to the indebtedness under
the Agreement (whether or not any court or Governmental Authority has ordered
the Clean-Up) and said costs shall become due and payable, with interest
thereon, at the Default Rate. After the occurrence of an Event of Default
hereunder, the Mortgagor shall give the Mortgagee and its employees, agents,
contractors and representatives, access to the Mortgaged Property to conduct any
Clean-Up that the Mortgagee, in its sole discretion, deems appropriate; however,
the Mortgagee has no affirmative obligation to conduct any such Clean-Up, and
this Mortgage and the Agreement shall not be construed as creating any such
obligation or any liability on the part of the Mortgagee.
(c) Any partial exercise by the Mortgagee of the remedies set
forth in Section 8.04(b) hereof, or any partial undertaking on the part of the
Mortgagee to cure the failure of the Mortgagor to comply with any Environmental
Laws, shall not obligate the Mortgagee to complete the actions taken or require
the Mortgagee to expend further sums to cure such noncompliance; nor shall the
exercise of any such remedies operate to place upon the Mortgagee any
responsibility for the operation, control, care, management or repair of the
Mortgaged Property or make the Mortgagee, or be construed to deem the Mortgagee
to be, an "owner" or "operator" of the Mortgaged Property within the meaning of
or under any Environmental Laws. The Mortgagee, by making any such
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payment or incurring any such costs, shall be subrogated to any rights of the
Mortgagor to seek reimbursement from any third parties including, without
limitation, a predecessor-in-interest to the Mortgagor's title to the Mortgaged
Property, who may be a "responsible party" or otherwise liable for any or all of
such payments or costs under any Environmental Laws, common law, equity or
contract.
Section 8.05. General.
(a) The representations, warranties, covenants and indemnities
contained in this Article VIII shall continue after and survive the execution
and delivery of this Mortgage, the discharge of the Bonds, the discharge of this
Mortgage, the payment in full of the Bonds and any foreclosure of this Mortgage
and any acquisition of title to the Mortgaged Property by the Mortgagee and they
shall be deemed continuing representations, warranties and indemnities for the
benefit of the Mortgagee and any successors and assigns of the Mortgagee,
including any transferee of the title of the Mortgagee or any subsequent
purchaser at a foreclosure sale, and any subsequent owner of the Mortgaged
Property claiming through or under the title of the Mortgagee.
(b) The representations and warranties of the Mortgagor in
this Article VIII are based on its investigations of the Mortgaged Property, and
the Mortgagee is entitled to rely thereon notwithstanding any independent
investigations by the Mortgagee or its employees, agents, contractors or
representatives.
(c) The Mortgagor and its successors and assigns, hereby
forfeit and forever waive, release and agree not to make any claim or bring any
cost recovery action against the Mortgagee arising out of any of the matters
described in Section 8.04 hereof under CERCLA, or any equivalent State of New
Jersey or local law, or any other Environmental Laws, except to the extent such
claim or action arises or results from the acts or omissions of the Mortgagee or
its successors or assigns after any foreclosure pursuant to the terms hereof. It
is expressly understood and agreed that to the extent that the Mortgagee is
strictly liable under any such law, statute, code, ordinance, regulation, rule
or other requirement, the indemnification obligation of the Mortgagor to the
Mortgagee under this Article VIII shall likewise be without regard to fault on
the part of the Mortgagor with respect to any violation or condition which
results in any liability to the Mortgagee.
(d) The Mortgagee's rights and remedies against the Mortgagor
under this Article VIII shall be in addition to and not in lieu of all other
rights and remedies of the Mortgagee under this Mortgage, the Agreement and the
other Loan Documents, at law or in equity.
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ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.01. Construction Mortgage. This Mortgage secures
future advances to be used in part for construction of any Capital Additions.
Accordingly, this Mortgage constitutes a "construction mortgage" as defined in
N.J.S.A 12A:9-313(1)(c).
Section 9.02. No Obligation of the Mortgagee. Neither the
acceptance by the Mortgagee of the assignment granted in Section 7.01 hereof, or
the security interest granted in Section 6.01 hereof, nor the granting of any
other right, power, privilege or authority in this Mortgage, nor the exercise of
any of the aforesaid, shall:
(a) prior to the taking of possession of the Mortgaged
Property by the Mortgagee be deemed to constitute the Mortgagee as a "Mortgagee
in Possession"; or
(b) at any time thereafter, obligate the Mortgagee:
(i) to appear and defend any action or proceeding
relating to the Mortgaged Property;
(ii) to take any action hereunder;
(iii) to expend any money or incur any expenses to
perform or discharge any obligation, duty or liability with
respect to any lease or agreement or with respect to the
Personalty, Fixtures, Rents or any other portion of the
Mortgaged Property;
(iv) to assume any obligation or responsibility for
any deposits which are not physically delivered to the
Mortgagee; or
(v) for any injury or damage to any person or
property sustained in or about the Mortgaged Property.
Section 9.03. Mortgagor's Attorney-in-Fact. The Mortgagor will
pay all costs of filing any financing, continuation or termination statements
with respect to the security interests created by this Mortgage and shall make,
execute and deliver or cause to be made, executed or delivered to the Mortgagee,
any further instruments, mortgages, conveyances, deeds, certificates and other
documents as may, in the opinion of the Mortgagee, be reasonably necessary or
desirable in order to effectuate, complete, confirm, or perfect or to continue
to preserve the Lien of this Mortgage; and the Mortgagee is hereby appointed as
the Mortgagor's attorney-in-fact to do, at the Mortgagee's option and at the
Mortgagor's expense, all acts and things which the Mortgagee may deem necessary
to perfect and continue to perfect the Lien and security interests created by
this Mortgage and to protect the Mortgaged Property. The Mortgagee may execute,
sign, endorse, transfer or deliver, in the name of the Mortgagor, notes, checks,
drafts or other instruments for the
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payment of money and receipts, certificates of origin, certificates of title,
applications for certificates of title, or any other documents necessary to
evidence, perfect or realize upon the Liens and security interests created or
secured by this Mortgage. This authority shall be considered a power coupled
with an interest and shall be irrevocable until all the amounts due under the
Agreement secured hereby shall have been paid in full.
Section 9.04. Damage, Destruction, Condemnation and Eminent
Domain. Should the Mortgaged Property or any part thereof, including any
easements or appurtenances thereof, be taken, destroyed or damaged, permanently
or temporarily, by reason of any public improvement or the exercise of the power
of eminent domain or purchase under threat of condemnation proceedings for the
public use of the Mortgaged Property or any part thereof, including any sale or
proceeding in lieu of condemnation, or fire or any other cause, all Proceeds of
any such damage, destruction, condemnation or taking shall be applied as
provided in the Agreement. The Mortgagor further agrees to give the Mortgagee
immediate notice of the actual or, to its knowledge, threatened commencement of
any such proceedings under condemnation or eminent domain and will deliver to
the Mortgagee copies of any and all papers served in connection therewith. The
Mortgagor agrees to execute such further assignments of any Proceeds, rights of
action and proceedings as the Mortgagee may request. Notwithstanding any taking
by eminent domain, alteration of the grade of any street or other injury to or
decrease in value of the Mortgaged Property, the Mortgagor shall continue to pay
the amounts due under the Agreement until any such Proceeds shall have been
actually received by the Mortgagee and any reduction in the amounts due under
the Agreement resulting from the application by the Mortgagee shall be deemed to
take effect only on the date of such receipt.
Section 9.05. No Waiver by the Mortgagee. By accepting payment
of any sum secured hereby after its due date, the Mortgagee does not waive any
late charge thereon not then paid or its right either to require prompt payment
when due of all other sums so secured or to declare a default for the
Mortgagor's failure to pay when any amount is due.
Section 9.06. Satisfaction.
(a) Except for the provisions which by their express terms
survive termination of this Mortgage, this Mortgage and the Lien and security
interests created hereby shall be null and void and extinguished, and the
Mortgagee shall execute and record a satisfaction of this Mortgage and the
Mortgagor shall be released from the covenants, agreements and obligations of
the Mortgagor contained herein upon the payment and performance of all amounts
due under the Agreement secured hereby.
(b) The recitals in such satisfaction of any matters or facts
shall be conclusive proof against all Persons of the truthfulness thereof. The
execution and recordation of a satisfaction of this Mortgage by the Mortgagee
shall be sufficient to extinguish all interests of the Mortgagee and its legal
representatives, successors and assigns.
Section 9.07. Notices. All communications under or in
connection with this Mortgage shall be in writing and shall be mailed by
certified mail, return receipt requested or by
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overnight express mail with notice for receipt, or otherwise sent by telex,
telegram, telecopy or similar form of rapid transmission, or by telephone
confirmed by mailing (in the manner stated above) of written confirmation at
substantially the same time as such rapid transmission, or personally delivered
to an office of the receiving party. All such communications shall be mailed,
sent or given to the following addresses:
If to the Mortgagor, to:
Able Laboratories, Inc.
6 Hollywood Court
South Plainfield, New Jersey 07080
Attention: Chief Financial Officer
If to the Mortgagee:
New Jersey Economic Development Authority
P.O. Box 990
36 West State Street
Trenton, New Jersey 08625
Attention: Managing Director of Investment Banking
Section 9.08. Amendment and Waiver. No amendment or waiver of
any provision of this Mortgage nor consent to any departure by the Mortgagor
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Mortgagee and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
Section 9.09. Payment of Costs and Expenses of Mortgagee. The
Mortgagor shall promptly pay upon demand all reasonable expenses and costs
incurred by the Mortgagee, including reasonable attorneys' fees and expenses in
connection with (a) any action, proceeding, litigation or claim instituted or
asserted by or against the Mortgagee or in which the Mortgagee becomes engaged,
wherein it becomes necessary in the opinion of the Mortgagee to defend or uphold
the Lien of this Mortgage, or the validity or effectiveness of any assignment or
any claim, award, payment, property damage insurance policy or any other right
or property conveyed, encumbered or assigned by the Mortgagor to the Mortgagee
hereunder, or the priority of any of the same, and (b) the exercise or
enforcement of any other rights or remedies of the Mortgagee hereunder, and in
any case, all such expenses and costs may be added to and become part of the
principal indebtedness of the Mortgagor hereunder, bear interest at the Default
Rate, and be secured in all respects hereby as if part of the principal
indebtedness of the Mortgagor hereunder and under the Agreement.
Section 9.10. Taxation of the Amounts Due Under Agreement and
Mortgage. If at any time before the amounts due under the Agreement hereby
secured are fully paid, any law of the State of New Jersey be enacted deducting
from the value of the Mortgaged Property for the purposes of taxation the amount
of any Lien thereon, or imposing upon the Mortgagee the payment of the whole or
any part of the Impositions herein required to be paid by the Mortgagor or
revising
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<PAGE>
or changing in any way the laws relating to the taxation of mortgages or debts
secured by mortgages or the Mortgagee's interest in the Mortgaged Property or
the manner of collection of taxes, so as to affect adversely this Mortgage or
the debt hereby secured, or the owner and holder thereof in respect thereto,
then, and in any such event, the Mortgagor upon demand by the Mortgagee, shall
pay such Impositions or reimburse the Mortgagee therefor; provided, however,
that if, in the written opinion of counsel for the Mortgagee, (a) it would be
unlawful to require the Mortgagor to make such payment; or (b) the making of
such payment might result in the imposition of interest beyond the Highest
Lawful Rate, then, in such event, the Mortgagee may elect, by notice in writing
given to the Mortgagor, to declare all of the amounts due under the Agreement
secured hereby to be and become due and payable within sixty (60) days from the
giving of such notice. Notwithstanding the foregoing, it is understood and
agreed that the Mortgagor is not obligated to pay any portion of the Mortgagee's
federal or State income taxes.
Section 9.11. No Credit for Taxes. The Mortgagor will not
claim or demand or be entitled to receive any credit or credits on the amounts
due under the Agreement for so much of the taxes assessed against said Mortgaged
Property as is equal to the tax rate applied to the amounts due under the
Agreement due on this Mortgage or any part thereof, and no deduction shall be
claimed from the taxable value of said Mortgaged Property by reason of this
Mortgage.
Section 9.12. Due on Sale; Assignability. The Mortgagor
acknowledges that the transfer of the Mortgaged Property could significantly and
materially alter, impair and reduce the Mortgagee's security for the unpaid
amounts due under the Agreement. The Mortgagor agrees, except as permitted in
the Agreement, not to, directly or indirectly, transfer the Mortgaged Property,
or any portion thereof, or any interest therein, without the prior written
consent of the Mortgagee. In the event the Mortgagor, or any successor in
interest of the Mortgagor, shall transfer the Mortgaged Property, or any portion
thereof, or any interest therein, to any Person without complying with the terms
of the Agreement, all unpaid amounts due under the Agreement, the payment of
which is secured by this Mortgage shall at the option of the Mortgagee and
without notice or demand, become immediately due and payable, and, in addition,
upon any such prohibited transfer, such transfer shall be deemed to be an "Event
of Default" hereunder. Consent to one such transaction shall not be deemed to be
a waiver of the right to require consent to future or successive transactions.
As used herein, "transfer" includes the sale, transfer or conveyance of the
Mortgaged Property, or any portion thereof, or any interest therein, whether
voluntary, involuntary (except by eminent domain), by operation of law or
otherwise or the sale or transfer of any legal or beneficial interest in the
Mortgagor. The Mortgagee shall have the right to assign this Mortgage to the
Trustee as provided in Section 2.02 hereof. All of the rights, privileges,
remedies and options given to the Mortgagee hereunder shall inure to the benefit
of its successors and assigns; and all the terms, conditions, promises,
covenants, provisions and warranties of this Mortgage shall inure to the benefit
of and shall bind the representatives, successors and assigns of the Mortgagee
and the Mortgagor.
Section 9.13. Severability. Any provision of this Mortgage
which is prohibited, unenforceable or not authorized in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or nonauthorization without invalidating the
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<PAGE>
remaining provisions hereof or affecting the validity, enforceability or
legality of such provision in any other jurisdiction.
Section 9.14. Governing Law. This Mortgage shall be governed
by and construed in accordance with the laws of the State of New Jersey without
giving effect to conflicts of laws.
Section 9.15. Future Advances. This Mortgage shall secure the
amounts due under the Agreement and any future or protective advances made
hereunder or under the Agreement.
Section 9.16. Headings. Section headings in this Mortgage are
included herein for convenience of reference only and shall not constitute a
part of this Mortgage for any other purpose.
Section 9.17. Entire Agreement. This Mortgage constitutes the
entire agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes and is full substitution for any and all
prior agreements and understandings between said parties related to such
transactions.
Section 9.18. Time of the Essence. Time is strictly of the
essence under this Mortgage and any amendment, modification or revision hereof.
Section 9.19. Further Action By Mortgagor. The Mortgagor shall
at its expense promptly upon request of the Mortgagee do all acts and things,
including, but not limited to, the execution of any further assurances deemed
necessary by the Mortgagee, to establish, confirm, maintain, protect and
continue the Lien created and intended to be created hereby, all assignments
made or intended to be made pursuant hereto and all other rights and benefits
conferred or intended to be conferred on the Mortgagee hereby, and the Mortgagor
shall pay all reasonable costs incurred by the Mortgagee in connection
therewith, including all filing and recording costs, cost of searches, and
reasonable attorneys' fees incurred by the Mortgagee.
Section 9.20. Advances by Mortgagee. The Mortgagee may, but is
not obligated to, pay any sum or perform any other obligation for the account of
the Mortgagor which the Mortgagor has failed to pay or perform (including, but
not limited to, procuring insurance), and sums so spent by the Mortgagee shall
be added to the principal sum secured by this Mortgage and be repayable by the
Mortgagor on demand, and shall bear interest from the date of advance by the
Mortgagee equal to the Default Rate.
Section 9.21. Invalid Provision Disregarded. If any term or
provision of this Mortgage or the application thereof to any Person or
circumstance shall to any extent be invalid or unenforceable, the remainder of
this Mortgage or the application of such term or provision to Persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term and provision of this Mortgage shall
be valid and be enforced to the fullest extent permitted by law.
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<PAGE>
Section 9.22. Inspection and Repairs by the Mortgagee. The
Mortgagor will permit the Mortgagee and the Mortgagee's representatives to enter
the Mortgaged Property at reasonable times upon prior written notice to inspect
the same; provided that the Mortgagee shall not be obligated to do so, either
directly or through its representatives. Such right of access shall include,
without limitation, the right to enter upon the Mortgaged Property to conduct
such tests, analyses, environmental audits, inspections and borings as the
Mortgagee may deem necessary or advisable, in its reasonable discretion. In case
of any breach or default by the Mortgagor in its maintenance and repair
obligations with respect to the Mortgaged Property under the Agreement, the
Mortgagee may, at its option, enter the Mortgaged Property to protect, restore
or repair any part thereof, but the Mortgagee shall be under no obligation to do
so.
Section 9.23. Assignment. The Mortgagor agrees that this
Mortgage will be assigned by the Mortgagee to the Trustee as provided in Section
2.02 hereof, subject to the reservation of certain rights by the Mortgagee; and
may be further assigned to any successor Trustee as provided in the Indenture.
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<PAGE>
IN WITNESS WHEREOF, this First Leasehold Mortgage, Security
Agreement, Assignment of Rents and Financing Statement has been duly executed as
of the day and year first above written.
[SEAL]
ATTEST: ABLE LABORATORIES, INC.
By: ___________________ By:________________________________
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<PAGE>
STATE OF NEW JERSEY )
) ss:
COUNTY OF ESSEX )
BE IT REMEMBERED that on this _____ day of _______, 1999, before me,
the subscriber, personally appeared _____________, the _________ of ABLE
LABORATORIES, INC., a corporation duly organized and validly existing under the
laws of the State of New Jersey, who, I am satisfied, is the person who has
signed the within instrument, and I having first made known to him the contents
thereof he thereupon acknowledged that he signed, sealed with the corporate seal
and delivered the said instrument in his capacity as an officer of such
corporation, and that the within instrument is the voluntary act and deed of
said corporation, made by virtue of authority from its Board of Directors.
____________________________
(NOTARIAL SEAL)
<PAGE>
SCHEDULE 8.02
S-1
<PAGE>
EXHIBIT A
[Property Description]
A-1
EXHIBIT 10.11
-------------
GUARANTY AGREEMENT
From
DYNAGEN, INC.,
as Guarantor,
To
NEW JERSEY ECONOMIC DEVELOPMENT AUTHORTY
Dated as of June 1, 1999
New Jersey Economic Development Authority
Industrial Development Revenue Bonds
(Able Laboratories, Inc. Project) Series 1999A
and
New Jersey Economic Development Authority
Industrial Development Revenue Bonds
(Able Laboratories, Inc. Project) (Taxable) Series 1999B
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR....................3
SECTION 1.1. REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR................3
ARTICLE II - AGREEMENT TO GUARANTEE...........................................4
Section 2.1. Obligations Guaranteed.........................................4
Section 2.2. Obligations Unconditional......................................5
Section 2.3. No Waiver or Set-Off...........................................7
Section 2.4. Events of Default..............................................7
Section 2.5. Waiver of Notice: Expenses.....................................9
Section 2.6. Benefit and Enforcement........................................9
Section 2.7. Survival of Guarantee Obligation...............................9
Section 2.8. Waiver of Rights...............................................9
ARTICLE III - NOTICE OF SERVICE OF PROCESS, PLEADINGS AND OTHER PAPER........10
Section 3.1. Service of Process............................................10
Section 3.2. Notices.......................................................10
Section 3.3. Consent to Jurisdiction.......................................10
ARTICLE IV - MISCELLANEOUS...................................................12
Section 4.1. No Alteration Without Consent.................................12
Section 4.2. Guaranty Agreement to Become Effective........................12
Section 4.3. Remedies Not Exclusive........................................12
Section 4.4. Entire Agreement: Counterparts................................12
Section 4.5. Severability..................................................12
Section 4.6. Release.......................................................12
Section 4.7. Applicable Law................................................13
Section 4.8. Successors and Assigns........................................13
Section 4.9. Date of Guaranty Agreement for Reference Purposes Only........13
Section 4.10. Assignment by Authority to Trustee...........................13
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<PAGE>
GUARANTY AGREEMENT
This GUARANTY AGREEMENT made and entered into as of June 1, 1999 (the
"Guaranty Agreement") (capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the Indenture or in the Loan Agreement, as each
is defined herein), from DYNAGEN, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Guarantor"), having an office at
840 Memorial Drive, Cambridge, Massachusetts, party of the first part, to NEW
JERSEY ECONOMIC DEVELOPMENT AUTHORITY, a body corporate and politic organized
and validly existing under the laws of the State of New Jersey (the "Authority")
having an office at 36 West State Street, Trenton, New Jersey, party of the
second part:
WITNESSETH:
WHEREAS, the Authority intends to issue its Industrial Development
Revenue Bonds (Able Laboratories, Inc. Project) Series 1999A in the aggregate
principal amount of $1,700,000 (the "Series 1999A Bonds") and its Industrial
Development Revenue Bonds (Able Laboratories, Inc. Project) (Taxable) Series
1999B in the aggregate principal amount of $300,000 (the "Series 1999B Bonds"
and together with the Series 1999A Bonds, the "Series 1999 Bonds"); and
WHEREAS, the Series 1999 Bonds are to be issued pursuant to the New
Jersey Economic Development Authority Act, constituting Chapter 80 of the
Pamphlet Laws of 1974 of the State of New Jersey, as amended and supplemented,
resolution of the Authority adopted on April 13, 1999, May 11, 1999 and June 8,
1999 and an Indenture of Trust of even date herewith (the "Indenture") between
the Authority and the U.S. Bank Trust National Association, as trustee (the
"Trustee"); and
WHEREAS, the proceeds derived from the issuance of the Series 1999
Bonds are to be used to finance (i) the acquisition of machinery and equipment
for an existing manufacturing facility located in South Plainfield, New Jersey;
(ii) the payment of the issuance costs incurred by the Guarantor's wholly owned
subsidiary, Able Laboratories, Inc. (the "Borrower") for the Series 1999 Bonds;
(iii) the funding of a lease reserve fund; and (iv) the funding of a debt
service reserve fund for the Series 1999 Bonds (collectively, the "Project");
and
WHEREAS, Borrower is unconditionally obligated under the Loan Agreement
dated as of June 1, 1999 by and between the Authority and the Borrower (the
"Loan Agreement") to pay amounts sufficient for the Authority to pay principal
of, premium, if any, and interest on the Series 1999 Bonds; and
WHEREAS, the Guarantor is desirous that the Authority issue, sell and
deliver the Series 1999 Bonds and apply the proceeds as aforesaid and enter into
the Loan Agreement with the Guarantor and the Guarantor is willing to enter into
this Guaranty Agreement in order to enhance the marketability of the Series 1999
Bonds and thereby achieve interest cost and other savings to
<PAGE>
the Borrower as an inducement to the purchase of the Series 1999 Bonds by all
who shall at any time become the holders of the Series 1999 Bonds.
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration received, the Guarantor does hereby represent,
warrant, covenant and agree with the Authority as follows:
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<PAGE>
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF
THE GUARANTOR
Section 1.1. Representations and Warranties of the Guarantor. The
Guarantor does hereby represent and warrant as follows:
(a) The Guarantor is a corporation duly organized and validly
existing under the laws of the State of Delaware, has the corporate power and
authority to own its property and assets, to carry on its business as now being
conducted by it and to execute, deliver and perform this Guaranty Agreement.
(b) The execution, delivery and performance by the Guarantor
of this Guaranty Agreement and the consummation of the transactions herein
contemplated by the Guarantor have been duly authorized by all requisite
corporate action on the part of the Guarantor and will not violate (i) any
applicable provision of law, or any order of any court or agency of government
having jurisdiction thereover, (ii) the articles of incorporation or by-laws of
the Guarantor, or (iii) any indenture, agreement or other instrument to which
the Guarantor is a party or by which it or any of its property is bound, or be
in conflict with or result in a breach of or constitute (with due notice and/or
lapse of time) a default under any such indenture, agreement or other instrument
which violation, conflict, breach or default would have a material adverse
effect upon the worldwide affairs, assets, properties, business or condition,
financial or otherwise, of the Guarantor.
(c) This Guaranty Agreement constitutes the legal, valid and
binding obligation of the Guarantor enforceable against the Guarantor in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to the enforcement of creditors' rights generally and to general equitable
principles.
(d) There is no action or proceeding pending or to the best
knowledge of the Guarantor threatened by or against the Guarantor by or before
any court or administrative agency that would materially adversely affect the
legality, validity or enforceability of, or the ability of the Guarantor to
perform its obligations under this Guaranty Agreement and all authorizations,
consents and approvals of governmental bodies or agencies required to be
obtained by the Guarantor as of the date hereof in connection with the execution
and delivery of this Guaranty Agreement or in connection with the performance of
the obligations of the Guarantor hereunder have been obtained.
(e) The assumption by the Guarantor of its obligations under
this Guaranty Agreement will result in a direct financial benefit to the
Guarantor, as the corporate parent of the Borrower.
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<PAGE>
ARTICLE II
AGREEMENT TO GUARANTEE
Section 2.1. Obligations Guaranteed.
(a) The Guarantor hereby unconditionally guarantees to the
Authority, for the benefit of the Bondholders, (1) the full and prompt payment
of the principal of the Series 1999 Bonds and the indebtedness represented
thereby, and the redemption premium, if any, on the Series 1999 Bonds when and
as the same shall become due and payable, whether at the stated maturity
thereof, by acceleration, call for redemption or otherwise; (2) the full and
prompt payment of interest on the Series 1999 Bonds when and as the same shall
become due and payable; and (3) the full and prompt performance of all
obligations of the Borrower under the Loan Agreement, the Note and the Mortgage.
The payment and performance obligations guaranteed in the preceding sentence are
collectively referred to herein as the "Guaranteed Obligations". The Guarantor
further hereby irrevocably and unconditionally agrees that, subject to any
applicable cure or grace periods, upon any default in any of the Guaranteed
Obligations, the Guarantor will promptly pay and/or perform the same as
applicable. All payments by the Guarantor shall be paid in lawful money of the
United States of America. Each and every default in any of the Guaranteed
Obligations shall give rise to a separate cause of action hereunder, and
separate suits may be brought hereunder as each cause of action arises.
(b) The Guarantor further agrees that this Guaranty Agreement
constitutes an absolute, unconditional, present and continuing guarantee of
payment and performance and not of collection, and waives any right to require
that any resort be had by the Authority to (1) any security held by or for the
benefit of the Authority or the Trustee for any of the Guaranteed Obligations,
(2) the Authority's or the Trustee's rights against any other Person, or (3) any
other right or remedy available to the Authority or the Trustee by contract,
applicable law or otherwise. The obligations of the Guarantor under this
Guaranty Agreement are direct, unconditional and completely independent of the
obligations of any other Person, and a separate cause of action or separate
causes of action may be brought and prosecuted against the Guarantor without the
necessity of joining the Authority, the Trustee or any other party or previously
proceeding with or exhausting any other remedy against any other Person who
might have become liable for any of the Guaranteed Obligations or of realizing
upon any security held by or for the benefit of the Authority or the Trustee.
(c) Reference is made to Article X of the Indenture which
provides that, subject to certain conditions, the Indenture may be discharged
prior to the date on which all of the Series 1999 Bonds have become due and
payable if there shall be deposited with the Trustee an amount sufficient to pay
the entire principal of, redemption premium, if any, and interest due and to
become due on such Series 1999 Bonds on or prior to the maturity or redemption
thereof together with all other expenses. If any lien, encumbrance or charge
based on any claim of any kind (including, without limitation, any claim for
income, franchise or other taxes, whether Federal, state or otherwise but
excluding any claim against any Bondholder) shall be asserted or filed against
any moneys so deposited with the Trustee (or the income therefrom) so as to:
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<PAGE>
(1) interfere with the due application by the Trustee
of such moneys to the payment of the Series 1999 Bonds pursuant to the
applicable provisions of the Indenture, or
(2) subject the Holders of the Series 1999 Bonds to
any obligation to refund any moneys applied to payment of the Series
1999 Bonds,
then the Guarantor promptly will take, or cause the taking of, such action
(including, but not limited to, the payment of money) as may be necessary to
prevent, or to nullify the cause or result of, such interference or such
obligation, as the case may be.
Section 2.2. Obligations Unconditional. The obligations of the
Guarantor under this Guaranty Agreement shall be absolute and unconditional, and
shall remain in full force and effect until the Guaranteed Obligations shall
have been paid in full, performed or provided for, and all costs, Authority's
fees, Trustee's fees and commissions and expenses, if any, referred to in
Section 2.7 hereof shall have been paid in full, and, to the extent permitted by
law, such obligations shall not be affected, modified, released or impaired by
any state of facts or the happening from time to time of any event, including,
without limitation, any of the following, whether or not with notice to, or the
consent of, the Guarantor:
(a) the invalidity, irregularity, illegality or
unenforceability of, or any defect in, the Loan Agreement, the Indenture, the
Note or the Series 1999 Bonds;
(b) any present or future law or order of any government (de
jure or de facto) or of any agency thereof purporting to reduce, amend or
otherwise affect the Series 1999 Bonds or any other obligation of the Authority
or any other obligor or to vary any terms of payment;
(c) any claim of immunity on behalf of the Authority or any
other obligor or with respect to any property of the Authority or any other
obligor;
(d) the waiver, compromise, settlement, release, extension,
indulgence, change, modification or termination of any or all of the
obligations, covenants or agreements of any obligor under the Indenture, the
Loan Agreement, the Note or the Series 1999 Bonds or of the payment, performance
or observance thereof, or the impossibility of performance or unenforceability,
invalidity, irregularity or illegality of any of such obligations, covenants or
agreements;
(e) the failure to give notice to the Guarantor or any obligor
under this Guaranty Agreement, the Indenture, the Loan Agreement, the Note or
the Series 1999 Bonds of the occurrence of any Event of Default under the terms
and provisions of any of such documents (except as may be specifically provided
in any of such documents);
(f) the actual or purported assignment, subleasing or
mortgaging of all or any part of the interest of the Authority or the Borrower
in the Project or any failure of title or interest with respect to the
Borrower's or the Authority's interest in the Project;
-5-
<PAGE>
(g) the actual or purported assignment of any of the
obligations, covenants and agreements contained in the Indenture, the Loan
Agreement, the Note, the Series 1999 Bonds or this Guaranty Agreement;
(h) the receipt and acceptance by the Trustee or the Authority
of notes, checks or other instruments for the payment of money made by the
Borrower or any other obligor under any of the documents executed in connection
with the Series 1999 Bonds and any extensions and renewals thereof;
(i) the extension of the time for payment of the principal of,
redemption premium, if any, or interest on the Series 1999 Bonds or any other
amounts that are due or may become due under the Series 1999 Bonds, the Loan
Agreement, the Note or the Mortgage, or of the time for performance of any other
obligations, covenants or agreements under or arising out of the Series 1999
Bonds or any of such documents or any extension or renewal thereof;
(j) the modification or amendment (whether material or
otherwise) of any duty, obligation, covenant or agreement set forth in the
Series 1999 Bonds, the Indenture, the Loan Agreement, the Note or the Mortgage;
(k) the taking of or the omission to take any action referred
to in the Series 1999 Bonds, the Loan Agreement, the Indenture, the Note, the
Mortgage or in this Guaranty Agreement;
(1) any failure, omission, delay or lack on the part of the
Authority, the Trustee or any other Person to enforce, assert or exercise any
right, power or remedy conferred on the Authority, the Trustee or such other
Person in this Guaranty Agreement, the Indenture, the Loan Agreement, the
Mortgage, the Note or the Series 1999 Bonds or any other act or acts on the part
of the Authority, the Trustee or the Holders from time to time of the Series
1999 Bonds;
(m) the voluntary or involuntary liquidation, dissolution,
merger, consolidation, sale or other disposition of all or substantially all the
assets, marshalling of assets and liabilities, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition with creditors or readjustment of, or other similar
proceedings affecting the Guarantor, the Borrower, the Authority or any obligor
under any of the documents executed in connection with the Series 1999 Bonds or
any or all of the assets of any of them, or any allegation or contest of the
validity of this Guaranty Agreement, the Indenture, the Loan Agreement, the
Note, the Mortgage or the Series 1999 Bonds in any such proceeding;
(n) to the extent permitted by law, the release or discharge
of the Guarantor from the performance or observance of any obligation, covenant
or agreement contained in this Guaranty Agreement by operation of law;
(o) the default or failure of the Guarantor fully to perform
any of its obligations set forth in this Guaranty Agreement;
-6-
<PAGE>
(p) any release or impairment of the security pledged under
the Indenture, the Loan Agreement, the Note, the Mortgage or the Series 1999
Bonds;
(q) the release, substitution or replacement in accordance
with the terms of the Loan Agreement of any property subject thereto or any
redelivery, repossession, surrender or destruction of any such property, in
whole or in part;
(r) any limitation on the liability or obligations of the
Borrower, the Guarantor, the Trustee, the Authority or any obligor under any of
the documents executed in connection with the Series 1999 Bonds, or any
termination, cancellation or frustration, in whole or in part, of any document
executed in connection with the Series 1999 Bonds or any term thereof, or the
Series 1999 Bonds;
(s) any failure of the Authority or the Trustee to mitigate
damages resulting from any default by any obligor under any of the documents
executed in connection with the Series 1999 Bonds;
(t) the merger or consolidation of any obligor under any of
the documents executed in connection with the Series 1999 Bonds into or with any
other Person, or any sale, lease or transfer of any or all of the assets of any
such obligor to any Person;
(u) any other circumstances which might otherwise constitute a
legal or equitable discharge or defense of a surety or a guarantor (other than
performance by the Guarantor of its obligations hereunder); or
(v) any other occurrence whatsoever, whether similar or
dissimilar to the foregoing.
Section 2.3. No Waiver or Set-Off. No act of commission or omission of
any kind or at any time upon the part of the Authority or the Trustee in respect
of any matter whatsoever shall in any way impair the rights of the Authority to
enforce any right, power or benefit under this Guaranty Agreement and no
set-off, counterclaim, reduction, or diminution of any obligation, or any
defense of any kind or nature (other than performance by the Guarantor of its
obligations hereunder), which the Guarantor or any other obligor under any of
the documents executed in connection with the Series 1999 Bonds has or may have
against the Authority or the Trustee shall be available hereunder to the
Guarantor. Nothing herein shall prevent the commencement of a separate action by
the Guarantor or the interposition of a mandatory counterclaim.
Section 2.4. Events of Default. An "Event of Default" shall exist if
any of the following occurs and is continuing:
(a) the Guarantor defaults in any payment of amounts due under
hereunder and such default continues for more than two (2) business days after
written notice has been given to the Guarantor by the Authority or the Trustee
of the occurrence of an Event of Default under the Indenture or under any other
document executed in connection with the Series 1999 Bonds;
-7-
<PAGE>
(b) the Guarantor fails to observe and perform any covenant,
condition or agreement (other than as referred to in Section 2.4(a) above) of
this Guaranty Agreement and (i) continuance of such default or failure for more
than thirty (30) days after written notice of such default or failure has been
given to the Guarantor by the Authority or the Trustee, or (ii) if by reason of
the nature of such default or failure the same can be remedied, but not within
the said thirty (30) days, the Guarantor fails to proceed with reasonable
diligence after receipt of said notice to cure the same or fails to continue
with reasonable diligence its efforts to cure the same;
(c) any warranty, representation or other statement made or
given by or on behalf of the Guarantor to the Authority, the Trustee or the
initial purchaser of the Series 1999 Bonds contained in this Guaranty Agreement
or in any of the other documents executed in connection with the Series 1999
Bonds is false, misleading or incorrect in any material respect as of the date
made;
(d) the Guarantor shall (i) apply for or consent to the
appointment of or the taking of possession by a receiver, liquidator, custodian
or trustee of itself or of all or a substantial part of its property, (ii) admit
in writing its inability, or be generally unable, to pay its debts as such debts
generally become due, (iii) make a general assignment for the benefit of its
creditors, (iv) commence a voluntary case under the Federal Bankruptcy Code (as
now or hereafter in effect), (v) file a petition seeking to take advantage of
any other law relating to bankruptcy, insolvency, rehabilitation,
reorganization, winding-up, or composition or adjustment of debts, (vi) fail to
controvert in a timely or appropriate manner, or acquiesce in writing to, any
petition filed against itself in an involuntary case under such Bankruptcy Code
(or under any other laws referenced in clause (v) above), (vii) take any action
for the purpose of effecting any of the foregoing, or (viii) be adjudicated a
bankrupt or insolvent by any court of competent jurisdiction; or
(e) a proceeding or case shall be commenced, without the
application or consent of the Guarantor, in any court of competent jurisdiction,
seeking, (i) liquidation, reorganization, dissolution, winding-up or composition
or adjustment of debts, (ii) the appointment of a trustee, receiver, liquidator,
custodian or the like of the Guarantor or of all or any substantial part of its
assets, or (iii) similar relief under any law relating to bankruptcy,
insolvency, rehabilitation, reorganization, winding-up or composition or
adjustment of debts, and such proceeding or case shall continue undismissed, or
an order, judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of sixty (60) days; or
the Guarantor shall consent in writing to any of the foregoing; or any order for
relief against the Guarantor shall be entered in an involuntary case under the
Federal Bankruptcy Code.
Upon an Event of Default the Authority and the Trustee shall have the
right to proceed first and directly against the Guarantor under this Guaranty
Agreement without proceeding against or exhausting any other remedies which it
may have and without resorting to any security held by the Trustee or by any
obligor under any of the documents executed in connection with the Series 1999
Bonds. All moneys recovered by the Authority or the Trustee pursuant to this
-8-
<PAGE>
Guaranty Agreement shall be deposited in accordance with the Indenture and used
and applied in accordance with the Indenture.
The Authority and the Trustee shall be under no obligation to institute
any suit or to take any remedial action under this Guaranty Agreement, or to
enter any appearance or in any way defend in any suit in which it may be made
defendant, or to take any steps in the enforcement of any rights and powers
under this Guaranty Agreement, until it shall be indemnified to its satisfaction
against any and all liability (including, without limitation, reasonable
compensation for services, costs and expenses, outlays, and counsel fees and
other disbursements) not due to its gross negligence or willful misconduct.
Section 2.5. Waiver of Notice: Expenses. The Guarantor hereby expressly
waives notice from the Authority, the Trustee or the Holders from time to time
of the Series 1999 Bonds of their acceptance and reliance on this Guaranty
Agreement or of any action taken or omitted in reliance hereon. The Guarantor
further expressly waives diligence, presentment, demand for payment, protest,
any requirement that any right or power be exhausted or any action be taken
against the Authority or the Trustee or against any other obligor under any of
the documents executed in connection with the Series 1999 Bonds. The Guarantor
agrees to pay all reasonable costs, Authority's fees, Trustee's fees and
commissions and expenses (including all reasonable court costs and attorneys'
fees) which may be incurred by the Authority or the Trustee in enforcing or
attempting to enforce this Guaranty Agreement following any Event of Default on
the part of the Guarantor hereunder, whether the same shall be enforced by suit
or otherwise.
Section 2.6. Benefit and Enforcement. This Guaranty Agreement is
entered into by the Guarantor for the benefit of the Authority, the Trustee and
the Holders from time to time of the Series 1999 Bonds, all of whom shall be
entitled in the same manner as set forth in the Indenture to enforce performance
and observance of this Guaranty Agreement to the same extent as if all were
parties signatory hereto.
Section 2.7. Survival of Guarantee Obligation. If the Authority or the
Trustee receive any payment on account of the Guaranteed Obligations, which
payment or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be transferred or
repaid to a trustee, receiver, assignee for the benefit of creditors or any
other party under any bankruptcy act or code, state or federal law or common law
or equitable doctrine or for any other reason whatsoever, then to the extent of
any sum not finally retained by the Authority or the Trustee, this Guaranty
Agreement shall remain in full force and effect until the Guarantor shall have
made payment to the Authority or the Trustee of such sum, which payment shall be
due on demand. If the Authority or the Trustee chooses to contest any such
matter, the Guarantor agrees to indemnify and hold harmless the Authority or the
Trustee, as applicable, with respect to all costs (including court costs and
attorneys' fees) of such litigation.
Section 2.8. Waiver of Rights. No payment hereunder by the Guarantor
shall entitle the Guarantor by subrogation to the rights of the Authority or the
Trustee to any payment by any other obligor or out of the property of any other
obligor, except after payment and performance in full of the Guaranteed
Obligations. The Guarantor waives any benefit of, or any right to participation
in, any security whatsoever now or hereafter held by the Authority and the
Trustee.
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<PAGE>
ARTICLE III
NOTICE OF SERVICE OF PROCESS, PLEADINGS AND OTHER PAPERS
Section 3.1. Service of Process. The Guarantor hereby designates and
appoints the President of the Borrower whose office is located at 6 Hollywood
Court, South Plainfield, New Jersey, 07080 as the agent of the Guarantor upon
whom may be served all process, pleadings, notices or other papers which may be
served upon the Guarantor as a result of any of its obligations under this
Guaranty Agreement; provided, however, that the serving of such process,
pleadings, notices or other papers shall not constitute a condition to the
Guarantor's obligations hereunder. The Guarantor covenants that for so long as
any of the Guaranteed Obligations are outstanding, the Guarantor will remain
subject to service of process in the State of New Jersey.
Section 3.2. Notices. All notices, demands and other communications by
the Authority or the Trustee to the Guarantor (including process, pleadings or
other papers served upon the foregoing agents) shall be effective (a) if given
by telecopy, when such communication is transmitted to the telecopy number set
forth below, (b) if given by mail within the United States of America, three (3)
Business Days after such communication is deposited in the United States mail
with first class postage prepaid, return receipt requested, addressed to the
Guarantor at the address set forth below, (c) if sent for overnight delivery
within the United States of America by Federal Express or other reputable
national overnight delivery service, one (1) Business Day after such
communication is entrusted to such service for overnight delivery and with
recipient signature required, addressed as aforesaid or (d) if given by any
other means, when delivered at the address of the party to whom such notice is
being delivered:
If to the Guarantor:
DynaGen, Inc.
840 Memorial Drive
Cambridge, MA 02139
Attention: Jay Wadekar
Telecopy: 617-354-3902
The Guarantor may designate a different address or telecopy number for the
Guarantor's receipt of such notices or other communications but no such change
shall be effective unless and until the Authority and the Trustee actually
receives written notice thereof from the Guarantor.
Section 3.3. Consent to Jurisdiction. The Guarantor irrevocably and
unconditionally (a) agrees that any suit, action or other legal proceeding
arising out of this Guaranty Agreement may be brought in the courts of record of
the State of New Jersey or the courts of the United States, District of New
Jersey; (b) consents to the jurisdiction of each such court in any such suit,
action or proceeding; and (c) waives any objection which it may have to the
laying of venue of any such suit, action or proceeding in any of such courts.
For such time as any of the Guaranteed Obligations shall be unpaid or
unperformed in whole, or in part, the Guarantor's agents designated in Section
3.1 hereof shall accept and acknowledge on the Guarantor's behalf service of any
and all process in any such suit, action or proceeding brought in any such
court. The Guarantor agrees and consents that any such service of process upon
such agents and written
-10-
<PAGE>
notice of such service to the Guarantor in the manner set forth in Section 3.2
hereof shall be taken and held to be valid personal service upon the Guarantor
whether or not the Guarantor shall then be doing, or at any time shall have
done, business within the State of New Jersey and that any such service of
process shall be of the same force and validity as if service were made upon the
Guarantor according to the laws governing the validity and requirements of such
service in the State of New Jersey. Such agents shall not have any power or
authority to enter into any appearance or to file any pleadings in connection
with any suit, action or other legal proceedings against the Guarantor or to
conduct the defense of any such suit, action or any other legal proceeding
except as expressly authorized by the Guarantor.
-11-
<PAGE>
ARTICLE IV
MISCELLANEOUS
Section 4.1. No Alteration Without Consent. No amendment, change,
modification, alteration or termination of the Indenture, the Loan Agreement,
the Note, the Mortgage or the Series 1999 Bonds shall be made which would in any
way increase any or all of the Guarantor's obligations under this Guaranty
Agreement without obtaining the prior written consent of the Guarantor. Neither
the acts or omissions recited in Section 2.2 hereof, nor any partial redemption
of the Series 1999 Bonds, shall constitute any such amendment, change,
modification, alteration or termination within the meaning of this Section 4.1.
Section 4.2. Guaranty Agreement to Become Effective. The obligations of
the Guarantor hereunder shall arise absolutely and unconditionally when the
Series 1999 Bonds shall have been issued, authenticated, sold and delivered by
the Authority.
Section 4.3. Remedies Not Exclusive. No remedy herein conferred upon or
reserved to the Authority or the Trustee is intended to be exclusive of any
other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Guaranty Agreement or now or hereafter existing at law or in equity. No delay or
omission to exercise any right or power accruing upon any Event of Default,
omission or failure of performance hereunder shall impair any such right or
power or shall be construed to be a waiver thereof, but any such right and power
may be exercised from time to time and as often as may be deemed expedient. In
order to entitle the Authority and the Trustee to exercise any remedy reserved
to it in this Guaranty Agreement, it shall not be necessary to give any notice,
other than such notice as may be expressly required in this Guaranty Agreement.
In the event any provision contained in this Guaranty Agreement should be
breached by any party and thereafter duly waived by the other party so empowered
to act, such waiver shall be limited to the particular breach so waived and
shall not be deemed to waive any other breach hereunder. No waiver, amendment,
release or modification of this Guaranty Agreement shall be established by
conduct, custom or course of dealing, but solely by an instrument in writing
duly executed by the parties hereunto duly authorized by this Guaranty
Agreement.
Section 4.4. Entire Agreement; Counterparts. This Guaranty Agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and may be executed simultaneously in several
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument. This Guaranty may be
amended by the Guarantor and the Authority only in accordance with the
Indenture.
Section 4.5. Severability. The invalidity or unenforceability of any
one or more phrases, sentences, clauses or Sections in this Guaranty Agreement
contained, shall not affect the validity or enforceability of the remaining
portions of this Guaranty Agreement, or any part thereof.
Section 4.6. Release. Upon the payment and satisfaction of all
Guaranteed Obligations and, if applicable, upon payment of the costs, fees,
commissions and expenses required by
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<PAGE>
Section 2.5 hereof, the Authority shall release in writing the Guarantor from
its obligations hereunder except as provided in Sections 2.1(c) or 2.7 hereof.
Section 4.7. Applicable Law. This Guaranty Agreement shall be governed
by and construed in accordance with the laws of the State of New Jersey.
Section 4.8. Successors and Assigns. Except as hereinafter provided in
this Section 4.8, the Guarantor agrees that during the term of this Guaranty
Agreement it will maintain its corporate existence, will not dissolve or
otherwise dispose of all or substantially all of its assets and will not
consolidate with or merge into another entity or permit one or more other
entities to consolidate with or merge into it; provided, that the Guarantor is
permitted to consolidate with or merge into another entity, or permit one or
more other entities to consolidate with or merge into it, or to sell or
otherwise dispose of all or substantially all of its assets as an entirety and
thereafter dissolve, provided if the Guarantor is not the surviving corporation,
the surviving, resulting or transferee corporation, as the case may be, (i)
assumes in writing all of the Guarantor's obligations under this Guaranty
Agreement, (ii) qualifies or is qualified to do business in New Jersey and (ii)
obtains an opinion of nationally recognized bond counsel to the effect that such
consolidation, merger, sale or other disposition does not adversely affect the
tax exempt status of the Series 1999A Bonds. The Guarantor may not otherwise
assign its obligations under this Guaranty Agreement. Subject to the foregoing,
this Guaranty Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
Section 4.9. Date of Guaranty Agreement for Reference Purposes Only.
The date of this Guaranty Agreement shall be for reference purposes only and
shall not be construed to imply that this Guaranty Agreement was executed on the
date first above written.
Section 4.10. Assignment by Authority to Trustee . The Guarantor hereby
acknowledges that the Authority will assign its right, title and interest in
this Guaranty Agreement to the Trustee pursuant to the terms of the Indenture.
Notwithstanding the above, the Authority retains the right to require the
Guarantor to comply with all of the Reserved Rights (as defined in the Loan
Agreement).
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<PAGE>
IN WITNESS WHEREOF, the Guarantor has duly authorized the execution of
this Guaranty Agreement as of the date first above written.
DYNAGEN, INC.
(SEAL) By:__________________________
C. Robert Cusick
President & CEO
___________________________
Dhananjay G. Wadekar
Executive Vice President
Accepted this 24th day of June, 1999
NEW JERSEY ECONOMIC DEVELOPMENT
AUTHORITY
By:___________________________
Caren S. Franzini
Executive Director
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EXHIBIT 10.12
-------------
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 November 20, 2000.
WARRANT TO PURCHASE COMMON STOCK
OF
DYNAGEN, INC.
FOR VALUE RECEIVED, DYNAGEN, INC., a Delaware corporation (the "Company"),
hereby certifies that Project Capital Partners, LLC , or its permitted assigns,
is entitled to purchase from the Company, at any time or from time to time
commencing on November 20, 1998 and prior to 5:00 P.M., Eastern Standard Time,
on November 20, 2000, a total of 100,000 fully paid and nonassessable shares of
the common stock, par value $.01 per share, of the Company for an aggregate
purchase price of $0.125 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 November 20, 1998 and prior to 5:00 P.M.,
Eastern Standard Time on November 20, 2000, 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 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)
<PAGE>
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 may (a) 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) 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 second anniversary of the date of issuance.
(b) Net Issuance. Notwithstanding anything to the contrary contained in
Section 1(a) hereof, in the case of any exercise on or prior to November 20,
2000 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 daily mean average of the closing price
of a share of Common Stock on the ten
consecutive trading days before the conversion
date
B = the Exercise Price
(c) Certain Adjustments
The Exercise Price and the number of Warrant Shares shall be equitably
adjusted from time to time to account for stock splits, stock dividends,
combinations, recapitalizations, reclassifications and similar events.
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,
2
<PAGE>
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 issuable 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 transferred, sold, pledged,
hypothecated or otherwise disposed of ("Transferred") unless an exemption from
such registration is available or if the Warrant or the Warrant Shares are sold
in accordance with Rule 144 promulgated under the Securities Act. 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 to the effect
that the Warrant or Warrant Shares to be sold or transferred have 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 Section
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 Shares 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 4, and the Holder
hereby agrees to indemnify and
3
<PAGE>
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. Upon surrender of this Warrant to the Company
or, if the Company so instructs the Holder in writing, 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 attempted assignment, transfer, pledge,
hypothecation or other disposition of this Warrant in any way 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
applicable 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.
4
<PAGE>
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, overnight delivery service, or sent by
facsimile, 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, Esq., Foley, Hoag &
Eliot LLP, One Post Office Square, Boston, Massachusetts 02109, or
(b) the Holder at 50 Federal Street, Boston, MA 02109, 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 mailing or, if sent by
facsimile, upon confirmation of transmission.
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 Executive Vice President and its corporate seal to be hereunto affixed
and attested by its Secretary this ____ day of _________, 1998.
ATTEST: DYNAGEN, INC.
: By:
- -------------------------- ----------------------------
Dhananjay Wadekar
Executive Vice President
5
<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:__________________________
__________________________________
6
<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:__________________________
__________________________________
__________________________________
7
EXHIBIT 10.13
-------------
CONSULTING AGREEMENT
THIS AGREEMENT IS among DYNAGEN, INC., a corporation organized under
laws of the State of Delaware, whose address is 840 Memorial Drive, Cambridge.
MA 02139 (hereinafter referred to as the "Company"); INVESTOR RELATIONS
SERVICES. INC., of 490 North Causeway, New Smyrna Beach, Florida 32169
(hereinafter referred to as the "Consultant"); and INFUSION CAPITAL INVESTMENT
CORPORATION, a North Carolina corporation with its principal office at 932 Burke
Street, Winston-Salem, North Carolina, as the Financing Agent Or the Consultant
(hereinafter referred to as "ICIC").
WHEREAS, the Consultant is in the business of assisting public
companies in financial advisory, strategic business planning, and investor and
public relations services designed to make the investing public knowledgeable
about the benefits of stock ownership in the Company; and
WHEREAS, the Consultant may, during the period of time covered by this
Agreement, present to the Company one or more plans of public and investor
relations to utilize other business entities to achieve the Company's goals of
making the investing public knowledgeable about the benefits of stock ownership
in the Company; and
WHEREAS, the Consultant confirms that he is not in the business of
stock brokerage, investment advice, activities which require registration under
either the Securities Act of 1933 (hereinafter "the Act") or the Securities and
Exchange Act of 1934 (hereinafter "the Exchange Act"), underwriting, banking, is
not an insurance company, nor does it offer services to the Company which may
require regulation under federal or state securities laws; and
WHEREAS, the parties agree, alter having an understanding of the
services desired and the services to be provided, that the Company desires to
retain Consultant to provide such assistance through its services for the
Company, and the Consultant is willing to provide such services to the Company;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the receipt and sufficiency of which is hereby acknowledged,
the parties agree as follows:
1. DUTIES AND INVOLVEMENT.
The Company hereby engages Consultant to provide a plan, and for
coordination in executing the agreed-upon plan, for using various investor and
public relations services as agreed by both parties. The plan may include, but
not by way of limitation, the following services: consulting with the Company
management concerning marketing surveys, investor accreditation, availability to
expand investor base, investor support, strategic business planning, broker
relations, conducting due diligence meetings, attendance at conventions and
trade shows, assistance in the preparation and dissemination of press releases
and stockholder communications. consulting on mergers with companies, review and
assistance in updating a business plan, review and advise on the capital
structure for the Company, propose legal counsel, assist in the development of
an acquisition profile and structure, recommend financing alternatives and
Page 1
<PAGE>
sources, and consult on corporate finance and/or investment banking issues. In
addition, these services may include production of a corporate profile and fact
sheets, personal consultant services, financial analyst and newsletter
campaigns, conferences, seminars and national tour, including, but not by way of
limitation, due diligence meetings, investor conferences and institutional
conferences, printed media advertising design, newsletter production, broker
solicitation campaigns, electronic public relations campaigns, direct mail
campaigns, placement in investment publications and press releases. (Addendum A)
2. RELATIONSHIP AMONG THE PARTIES.
Consultant acknowledges that it is not an officer, director or agent of
the Company; it is not, and will not, be responsible for any management
decisions on behalf of the Company and may not commit the Company to any action.
The Company represents that the Consultant does not have, through stock
ownership or otherwise, the power to control the Company, nor to exercise any
dominating influence over its management.
Consultant understands and acknowledges that this Agreement shall not
create or imply any agency relationship among the parties; and Consultant will
not commit Company in any manner except when a commitment has been specifically
authorized in writing by the Company.
The Company and Consultant agree that the relationship among the
parties shall be that of independent contractor.
3. EFFECTIVE DATE, TERM AND TERMINATION.
This Agreement shall begin on April 1, 1999, and will continue until
March 31, 2000.
4. OPTION TO RENEW AND EXTEND.
Company may renew this Agreement on the same terms by providing written
notice to Consultant any time prior to the expiration hereof.
5. COMPENSATION AND PAYMENT OF EXPENSES.
The Company agrees to pay to ICIC, or its designee, the total sum of
One Million ($1,000,000) Dollars worth of the shares of common stock of the
Company as total and complete consideration for the services to be provided by
the Consultant to the Company. The stock shall contain a Rule 144 restriction
and shall be delivered to ICIC upon the execution of this agreement. The number
of shares to be issued shall be at the rate of $0.375 a share. It is understood
and contemplated by this Agreement that shares may be assigned by ICIC to one or
more of its subcontractors.
Upon payment of such stock to ICIC, ICIC will arrange for payment on
behalf of the Company to the Consultant for the services to be provided, and
Company shall have no other obligation to Consultant or ICIC for payment,
excepting the obligation for additional compensation as contained herein.
Page 2
<PAGE>
Company agrees to pay for all costs and expenses incurred associated
with its own employees' working with Consultant and its representatives,
including lodging, meals and travel as necessary. All other expenses for the
fulfillment of this Agreement, as contained in Addendum A, shall be borne by the
Consultant, and by third parties engaged by it in connection with the
performance of the financial and public relations services provided for herein.
If required by federal law or regulation, ICIC will take necessary
steps to prepare and file any necessary forms to comply with the transfer of the
shares of stock from Company to ICIC, including, if required, form 13(d).
6. SERVICES NOT EXCLUSIVE.
Consultant shall devote such of its time and effort necessary to the
discharge of its duties hereunder. The Company acknowledges that Consultant is
engaged in other business activities, and that it will continue such activities
during the term of this Agreement. Consultant shall not be restricted from
engaging in other business activities during the term of this Agreement.
7. CONFIDENTIALITY.
Consultant acknowledges that it may have access to confidential
information regarding the Company and its business. Consultant agrees that it
will not, during or subsequent to the term of this Agreement, divulge, furnish,
or make accessible to any person (other than with the written permission of the
Company) any knowledge or information or plans of the Company with respect to
the Company or its business, including, but not by way of limitation, the
products of the Company, whether in the concept or development stage; or being
marketed by the Company on the effective date of this Agreement or during the
term hereof. Consultant has entered into a separate confidentiality Agreement
with the Company which will govern all confidentiality issues during the term of
the Confidentiality Agreement.
8. COVENANT NOT TO COMPETE.
During the term of this Agreement, Consultant warrants, represents and
agrees that it will not directly participate in the information developed for
and by the Company, and will not compete directly with the Company in the
Company's primary industry or related fields.
9. INVESTMENT REPRESENTATION.
The Company represents and warrants that it has provided ICIC with
access to all publicly available information on the Company concerning its
condition, financial and otherwise, its management, its business and its
prospects. The Company represents that it has provided ICIC with all copies of
the Company's filings for the prior twelve (12) months made under the rules and
regulations promulgated under the Act, as amended, if any, (the "Disclosure
Documents") or the "Exchange Act". Consultant and ICIC acknowledge that the
acquisition of securities to be issued to Consultant involves a high degree of
risk. ICIC represents that it and its advisors have been afforded the
opportunity to discuss the Company with its management. The Company represents
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that it has and will continue to provide ICIC with any information or
documentation necessary to verify the accuracy of the information contained in
the Disclosure Documents, and will promptly notify Consultant and ICIC upon the
filing of any Registration Statement or other periodic reporting documents filed
pursuant to the Act or the Exchange Act. This information will include DTC
sheets, which shall be provided to the Consultant no less than every two (2)
weeks.
The Consultant represents that it is not subject to any disciplinary
action by either the National Association of Securities Dealers or the
Securities and Exchange Commission by virtue of any violations of their rules
and regulations.
10. REGULATION S.
The Company agrees that during the term of this Agreement, it will
notify the Consultant, in writing, of the issuance of any common stock pursuant
to Regulation S of the General Regulations of the Securities and Exchange
Commission, or any registration of the Company's securities by means of a Form
S-8 Registration Statement.
11. ASSIGNMENT.
This Agreement may not be assigned by either party hereto without the
written consent of the other, but shall be binding upon the successors of the
parties.
12. ARBITRATION.
If a dispute arises out of, or relates to this Agreement, or the breach
thereof, and if said dispute cannot be settled through direct discussion, the
parties agree to first endeavor to settle the dispute in an amicable manner by
mediation under the Commercial Mediation Rules of the American Arbitration
Association before resorting to arbitration. Thereafter, any unresolved
controversy or claim arising out of, or relating to this Agreement, or a breach
thereof, shall be settled by arbitration in accordance with the Rules of the
American Arbitration Association, and judgment upon the award rendered by the
Arbitrator may be entered in any court having jurisdiction thereof. Any
provisional remedy which would be available from a court of law shall be
available to the parties to this Agreement from the Arbitrator pending
arbitration. The situs of the arbitration shall be Orange County, Florida.
13. INDEMNIFICATION.
(a) Both parties agree to indemnify and hold harmless the other, and
its agents and employees, against any losses, claims, damages or
liabilities, joint or several, to which either party, or any such other
person, may become subject under the Act, the Exchange Act, or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions, suits or proceedings in respect thereof) arise out of, or are
based upon any untrue statement or alleged untrue statement of any
material Act contained in the Registration Statement, any preliminary
prospectus, the prospectus, or any amendment or supplement thereto, or
information provided to brokers or shareholders by the Consultant, or
arise out of, or are based upon the omission, or alleged omission, to
state therein a material fact required to
Page 4
<PAGE>
be stated therein, or necessary to make the statements therein not
misleading, and will reimburse the other party, or any such other
person, for any legal or other expenses reasonably incurred by the
other party, or any such other person in connection with investigating
or defending any such loss, claim, damage, liability, or action, suit
or proceeding; provided, however, that the other party will not be
liable in any such case to the extent that any such loss, claim, damage
or liability arises out of, or is based upon an untrue statement or
alleged untrue statement, or omission or alleged omission, from the
Registration Statement, any preliminary prospectus, the prospectus, or
any such amendment or supplement, or information provided to brokers,
or shareholders, by the Consultant in reliance upon, and in conformity
with, written information furnished by one party to the other
specifically for use in the preparation thereof.
(b) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, suit or proceeding, such
indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party under this Section, notify the
indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability
which it may otherwise have to any indemnified party other than under
this Section. In case of any such action, suit or proceeding is brought
against any indemnified party, and it notified an indemnifying party of
the commencement thereof, the indemnifying party will be entitled to
participate therein, and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section, for any
legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation.
14. REMOVAL OF RESTRICTIVE LEGENDS AND LIQUIDATED DAMAGES
The Company hereby acknowledges that time is of the essence with
respect to registration of the shares, and that in the event the shares are not
available for sale, under Rule 144(d), by April 15, 2000, the Company agrees to
issue either an additional number of shares equal to ten percent (10%) of the
total number of shares issued herein for each additional thirty (30) day delay
in removing any Rule 144 legend, or the cash equivalent of such shares. In the
event of a delay of less than a full thirty (30) day period, the Consultant
shall be entitled to a pro-rata allocation of additional shares.
Consultant understands and acknowledges that the shares of common stock
are being acquired by ICIC for its own account, and not on behalf of any other
person, and are being acquired for investment purposes and not for distribution.
ICIC represents that the common stock which will be a suitable investment for
ICIC, taking into consideration the restrictions on transferability affecting
the common stock.
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15. "PIGGYBACK REGISTRATION."
If the Company proposes to register any equity securities under the
Securities Act for sale to the public for cash, whether for its own account or
for the account of other security holders, or both, on each such occasion, the
Company will give written notice to ICIC and Consultant no less than fifteen
(15) business days prior to the anticipated filing date, of its intention to so.
Upon the written request of ICIC, received by the Company no later than the
tenth (10th) business day after receipt by ICIC of the notice sent by the
Company, to register, on the same terms and conditions as the securities
otherwise being sold pursuant to such registration, any of its registrable
securities (which request shall state the intended method of disposition
thereof), the Company will cause the registerable securities, as to which
registration shall have been so requested to be included in the securities to be
covered by the Registration Statement proposed to be filed by the Company, on
the same terms and conditions as any similar securities included therein, all to
the extent requisite to permit the sale or other disposition by the Consultant
(in accordance with its written request) of such registerable securities so
registered, provided, however. that the Company may, at any time prior to their
effectiveness of any such Registration Statement, in its sole discretion and
with the consent of ICIC, abandon the proposed offering in which the ICIC had
requested to participate.
16. NOTICES.
All notices required or permitted to be given under this Agreement
shall be given in writing and shall be delivered, either personally or by
express delivery service, to the party to be notified. Notice to each party
shall be deemed to have been duly given upon delivery, personally or by courier
(such as Federal Express or similar express delivery service) addresses to the
attention of the officer at the address set forth beneath the signature line
below, or to such other officer or addresses as either party may designate, upon
at least ten (10) days' notice, to the other party.
17. GOVERNING LAW.
This Agreement shall be construed by and enforced in accordance with
the laws of the State of Delaware.
18. ENTIRE AGREEMENT.
This Agreement contains the entire understanding and agreement among
the parties. There are no other agreements, conditions or representations, oral
or written, expressed or implied, with regard thereto. This Agreement may be
amended only in writing signed by both parties.
19. NON-WAIVER.
A delay or failure by either party to exercise a right under this
Agreement, or a partial or single exercise of that right, shall not constitute a
waiver of that or any other right.
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20. COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
Agreement.
21. BINDING EFFECT.
The provisions of this Agreement shall be binding upon the parties,
their successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement to be effective as of the day and year provided herein.
COMPANY: CONSULTANT:
DYNAGEN, INC. INVESTOR RELATlONS
SERVICES, INC.
840 Memorial Drive 490 North Causeway
Cambridge. MA 02139 New Smyrna Beach, FL 32169
Phone: 617-491-2527 Phone: 904-409-0200
By: /s/ Dhananjay G. Wadekar By: /s Richard J. Fixaris
------------------------- ------------------------
Dhananjay G. Wadeker Richard J. Fixaris
Executive Vice President President and CEO
INFUSION CAPITAL
INVESTOR CORPORAT1019
932 Burke Street
Winston-Salem, NC
Phone: 336-918-0509
By: /s/ Daniel Starczewski
-----------------------
Daniel Starczewski
President
Page 7
<PAGE>
ADDENDUM A
CORPORATE PROFILE AND FACT SHEET
A two-page, two color broker fact sheet, and a four-page, full color
Company profile will be created, each highlighting the Company and the benefits
of owning the Company's stock. These pieces are included in broker/dealer
information packages for dissemination to prospective investors, and may also be
targeted to stock analysts and newsletter editors. Consultant's services include
creative writing, art work, layout and design and panting. Materials updated
four times per year, as applicable.
PERSONAL CONSULTANT SERVICES
A Personal Consultant will supervise and actively assist in every facet
of the Company's overall marketing campaign. In addition to coordinating all
above-listed services, the Personal Consultant will maintain daily contact with
investor relations office staff, Company officers and active brokers; he will be
available for consultation 24 hours per day, every day, via cellular telephone,
to address urgent needs as well as general strategic planning. The Personal
Consultant will travel extensively to meet qualified brokers one-on-one, and
will arrange specially scheduled conference calls with audiences of brokers,
analysts and money managers. The Personal Consultant will personally arrange
invitation-only due diligence broker meetings, and will directly supervise all
logistics and follow-up. The cost of the personal Consultant will be paid by the
Consultant.
BROKER SOLICITATION CAMPAIGN
Specialized professional financing public relations services will be
provided through an ongoing telemarketing campaign soliciting new broker
dealers, to generate interest in the Company and its stock. This campaign will
include direct personal telephone follow-up with retail brokers in active
contact with Company executives and investor relations staff. Supervised
in-house personnel will be assigned specifically to guide Company interactions
with brokers and field representatives.
PRESS RELEASES
Company press releases will be written and disseminated to news wire
services. Press releases will also be disseminated to the at-large broker
community by fax and mail, plus telephone and fax follow-up with 500-1,000
active brokers. Press releases may be reproduced in national financial magazines
such as Investor's Business Daily, Barron's and Individual Investor.
ADDENDUM A - Page 1
<PAGE>
PRINT MEDIA ADVERTISING
An advertisement, targeted to both brokers and investors, will be
created and inserted in a major financial and investment magazine or newspaper
at the Consultants cost. Publications which target and deliver large numbers of
active brokers, qualified investors and other niche groups interested
specifically in the Company's product or industry category will be emphasized.
Consultant's services include creative writing, art work, layout and design, and
coordination of magazine/newspaper inserts.
FINANCIAL ANALYST and NEWSLETTER CAMPAIGN
The Financial Analyst and Newsletter Campaign will be intertwined with
our Broker Solicitation Campaign which provides an essential link to increasing
investor awareness for the Company. Each Company is presented to our carefully
developed network of financial analysts and newsletter publications that
specialize in identifying emerging growth companies and presenting buy
recommendations to their loyal following of investors. Utilization of direct
mail pieces, e-mail, broadcast faxing and phone contacts will ensure effective
and prompt coverage for our clientele. In order to best expose the Company, this
campaign may include personal meetings with editors, analysts and writers for a
number of publications and research houses nationwide.
CONFERENCES, SEMINARS AND NATIONAL TOURS
Due Diligence Meetings: Opportunities for Company exposure before
broker/dealer audiences will be provided in New York, Boston, Chicago, Atlanta,
Orlando, Boca Raton, Denver, San Francisco, southern California and other major
metro areas. Consultant's services include overall meeting coordination and
implementation; room rental, catering (hot ant cold hor d'oeuvres and snacks),
alcoholic and non-alcoholic beverages, broker/dealer invitations (printing, mail
coordination, postage and telephone contact), transportation (coach air fare and
hotel accommodations, as applicable), additional broker meetings and telephone
follow-up.
Investor Conferences: Opportunities for Company exposure before large
audiences of qualified, wealthy investors will be provided in various locations
across North America. These conferences provide executives of participating
companies with unique forums for sharing the spotlight with top financial and
investment experts while making personal contact with wealthy investors and
presenting the benefits of the companies. The most popular package for
conference participants includes an exhibit booth, private workshop, broker
presentation and distribution of collateral materials. Among the most popular
and established conferences are those produced by Investment Seminars Inc.,
Blanchard's Investment Conferences and Sound Money Investors, Inc.
Institutional Conferences: Opportunities for Company exposure before
representatives of major financial institutions may be arranged for any of the
following conferences: North American Corporate Forum, Westergaard Waldorf
Conference Series, Boston Stockholders Club, Hartford Stockholders Club,
Equities Conferences and Investment Research Institute. The conferences
sponsored by the North American Corporate Forum and Westergaard Waldorf
Conference Series are three-day events held in New York, designed to allow
participating
ADDENDUM A - Page 2
<PAGE>
companies to meet and consult with investment analysts and portfolio managers
representing all primary investment centers in the United States and Canada.
ELECTRONIC MEDIA
A coordinated mix of financial and investment radio and television
programming, covering major markets across the United States and designed to
serve as Company marketing and lead generation conduits, will be arranged. The
Company may be featured on talk shows, special interview segments and
commercials. Program duplicates may be distributed to select brokers and
investors to heighten Company awareness.
DIRECT MAIL CAMPAIGN
A four-page, full color direct mail lead generation piece, highlighting
the Company and the benefits of owning the Company's stock, will be created.
This lead generator will be mailed to 100,000 selected, qualified investors, in
one large mailing or in smaller increments. Printed on heavy gloss stock, the
piece includes a postage paid business reply card, plus an identifying telephone
number enabling investors to respond immediately. Additionally. market makers
names and phone numbers may be listed directly on the mailing piece for all-in
lead generation. The piece includes a postage-paid business reply card, plus an
identifying telephone number enabling, investors to respond immediately.
Consultant's services include creative writing, art work, layout and design,
printing, list rentals, mail handling postage and business reply card
coordination.
INVESTMENT PUBLICATIONS
Personal Investing News is a glossy magazine distributed quarterly to
approximately 40,000 educated. affluent U.S. investors active in the emerging
growth company marketplace. A two-page interview with a key officer of the
Company, emphasizing the Company's merits and growth potential, will be created
for inclusion in Personal Investing News. An additional two- page advertorial
about the Company with a similar emphasis on the Company's merits, will be
included in Personal Investing News, and will feature the address and telephone
number of the Company, and/or the address and telephone number for market makers
of the Company stock. In addition, a photograph of the key Company officer
featured in the interview will appear on the front cover of Personal Investing
News to draw attention to the Company's story inside the magazine. Consultant's
services include creative writing, art work, layout and design, printing and
list rentals.
Bull & Bear is a tabloid-style newspaper distributed six to nine times
per year to approximately 60,000 active investors in the United States and
Canada. The two-page Personal Investing News advertorial will be reprinted for
inclusion in Bull & Bear.
ADDENDUM A - Page 3
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,398,284
<SECURITIES> 0
<RECEIVABLES> 3,797,320
<ALLOWANCES> 56,240
<INVENTORY> 8,122,235
<CURRENT-ASSETS> 14,729,945
<PP&E> 4,214,219
<DEPRECIATION> 1,296,046
<TOTAL-ASSETS> 21,431,137
<CURRENT-LIABILITIES> 15,114,628
<BONDS> 0
0
221
<COMMON> 560,388
<OTHER-SE> 848,386
<TOTAL-LIABILITY-AND-EQUITY> 21,431,137
<SALES> 13,605,612
<TOTAL-REVENUES> 13,605,837
<CGS> 11,181,983
<TOTAL-COSTS> 16,436,941
<OTHER-EXPENSES> (33,876)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 701,596
<INCOME-PRETAX> (3,498,824)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,498,824)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,498,824)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.01)
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