AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 2000
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DYNAGEN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
04-3029787
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
1000 WINTER STREET, SUITE 2700
WALTHAM, MASSACHUSETTS 02154
(781) 890-0021
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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C. ROBERT CUSICK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DYNAGEN, INC.
1000 WINTER STREET, SUITE 2700
WALTHAM, MASSACHUSETTS 02154
(781) 890-0021
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
DAVID A. BROADWIN, ESQ.
FOLEY, HOAG & ELIOT LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 832-1259
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value............. 5,000,000 $.33 $1,650,000 $440.55
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(1) Estimated solely for the purposes of determining the registration fee. In accordance with Rule 457(c) under the
Securities Act of 1933, the above calculation is based on average of the high and low prices reported on the
OTC Bulletin Board on January 10, 2000.
</TABLE>
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
PROSPECTUS
DYNAGEN, INC.
SUBJECT TO COMPLETION, DATED JANUARY 13, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
5,000,000 SHARES
COMMON STOCK
The selling stockholder is offering 5,000,000 shares of common stock. We
will not receive any of the proceeds from sales of shares by the selling
stockholder.
The selling stockholder may sell these shares from time to time in the
over-the-counter market, on the Boston Stock Exchange or otherwise.
DynaGen's common stock is traded on the Boston Stock Exchange under the
symbol "DYG" and quoted on the OTC Bulletin Board under the symbol "DYGN." The
last reported sale price of the common stock on the OTC Bulletin Board on
January 10, 2000 was $.335 per share.
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INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is January , 2000.
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT IS ACCURATE ONLY AS
OF THE DATE OF THIS DOCUMENT, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
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TABLE OF CONTENTS
PAGE
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Summary................................................................... 3
Risk Factors.............................................................. 5
Forward-Looking Statements................................................ 8
Use of Proceeds........................................................... 9
Dividend Policy........................................................... 9
Selling Stockholder....................................................... 9
Plan of Distribution...................................................... 10
Legal Matters............................................................. 11
Experts................................................................... 11
Material Changes and Developments......................................... 12
Disclosure of SEC Position on Indemnification for
Securities Act Liabilities .......................................... 12
Where You Can Find More Information....................................... 12
We own or have rights to various trademarks and trade names used in our
business. These include DYNAGEN, ABLE, SUPERIOR, GDI, and others. This
prospectus also refers to trademarks and trade names of other companies.
2
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SUMMARY
BECAUSE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION
THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY
BEFORE YOU DECIDE TO PURCHASE THE SHARES OF COMMON STOCK BEING OFFERED BY THIS
PROSPECTUS. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION PROVIDED IN THIS
PROSPECTUS UNDER THE HEADING "RISK FACTORS."
DYNAGEN
INTRODUCTION: We develop, manufacture and distribute generic drugs. From
our inception in 1988 until 1996, we focused primarily on
developing new drugs and licensing the resulting products
and technologies to others. Beginning in 1996, we began
redirecting our business focus to building a generic drug
distribution business.
THE MULTISOURCE
GENERIC DRUG
BUSINESS: Generic drugs compete with brand-name drugs for which
patent protection or other government-mandated market
exclusivity has expired. Generic drugs are the chemical and
therapeutic equivalents of brand-name drugs. They are
required to meet the same governmental standards as the
brand-name drugs they replace, and they must meet all FDA
guidelines. Generic drugs are typically sold under their
generic chemical names at prices significantly below those
of their brand-name equivalents. We estimate that the U.S.
market for generic drugs approximates $12 billion in annual
sales. This market has grown due to a number of factors,
including:
o a significant number of widely-prescribed
brand-name drugs are at or near the end of their
period of patent protection, making it possible
for generic manufacturers to produce and market
competing generic drugs;
o managed care organizations, which prefer
lower-cost generics to brand-name products, are
capturing a greater share of the healthcare
market; and
o physicians, pharmacists and consumers are
increasingly accepting generic drugs as an
alternative to brand-name drugs.
OUR BUSINESS: We intend to compete with other generic drug companies by
combining two key elements of the business: manufacturing
and distribution. We have acquired three operating
subsidiaries to carry out this plan:
ABLE LABS: In August 1996, we acquired Able Laboratories,
Inc., including its 46,000-square foot tablet
and suppository manufacturing facility in South
Plainfield, New Jersey. As part of the
acquisition of Able, we obtained rights to
eleven FDA-approved Abbreviated New Drug
Applications for generic drug products. We are
currently marketing three of these acquired
products.
SUPERIOR: In June 1997, we acquired Superior
Pharmaceutical Company, a generic drug
distributor in Cincinnati, Ohio. Since we
acquired it, Superior has experienced a sharp
and steady decline in its sales and margins.
Superior lost several key personnel immediately
after
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the acquisition, which resulted in a loss of
business with certain federal and corporate
accounts, and also suffered the effects of
erosion in margins brought on by price pressure
in the generic drug industry. We have taken
actions intended to improve Superior's
performance. In the past six months, Superior
has hired and trained additional sales staff,
upgraded its systems and instituted controls to
improve margins. Superior is also aggressively
bidding on federal and state contracts and has
won supply agreements with the governments of
the states of Florida, Ohio, Louisiana and
Texas. We can give no assurance, however, that
these actions will improve Superior's
performance in the near future or at all.
GENERIC
DISTRIBUTORS: In March 1998, we acquired Generic Distributors
Limited Partnership, a distributor of generic
drugs based in Monroe, Louisiana. Generic
Distributors's customer base consists primarily
of independent pharmacies in the states of
Louisiana, Texas, Arkansas, Alabama and
Mississippi. We believe that Generic
Distributors complements Superior by providing
next-day delivery service to the southern and
southeastern United States. We believe that
Generic Distributors has the potential to grow
its business through supply opportunities with
institutional, hospital and nursing home
pharmacies. We can give no assurance that such
opportunities will arise, though, or that we
will be able to exploit any such opportunities
profitably.
OUR ADDRESS: Our corporate headquarters is at 1000 Winter Street, Suite
2700, Waltham, MA 02154. The telephone number at our
corporate office is (781) 890-0021, and the facsimile
number is (781) 890-0118.
SPECIAL
CONSIDERATIONS
AND RISK FACTORS: We experienced a sharp decline in our stock price and
market value in 1997 and 1998. In the section of this
prospectus entitled "Risk Factors," beginning on page 5, we
have described several matters which we believe are
significant and which you should consider very carefully
before you decide to invest in the common stock. There are
two specific factors to which we want to draw your
attention:
o our independent auditors, in their opinion on our
financial statements as of December 31, 1998 and
for the year then ended, expressed substantial
doubt as to our ability to continue as a going
concern; and
o we need significant additional financing to
continue operations.
THE OFFERING
COMMON STOCK
OFFERED: All of the 5,000,000 shares offered by this prospectus are
being sold by the selling stockholder. The selling
stockholder holds shares of convertible preferred stock
and warrants to purchase common stock which it acquired in
a private investment transaction in July and November 1999.
USE OF PROCEEDS: We will not receive any of the proceeds from sales of
shares by the selling stockholder.
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RISK FACTORS
BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. WE HAVE SET FORTH BELOW THE
MATERIAL RISK FACTORS NECESSARY TO MAKE AN INFORMED INVESTMENT DECISION. YOU
SHOULD CAREFULLY CONSIDER THESE RISK FACTORS, TOGETHER WITH ALL OF THE OTHER
INFORMATION INCLUDED IN THIS PROSPECTUS, INCLUDING INFORMATION INCORPORATED BY
REFERENCE, BEFORE YOU DECIDE WHETHER TO PURCHASE SHARES OF OUR COMMON STOCK.
IF WE CONTINUE TO INCUR LOSSES, THEN THE VALUE OF OUR COMMON STOCK WILL
LIKELY DECLINE
We have incurred operating losses in every operating period since our
inception. We had an accumulated deficit of $55,316,694 as of September 30,
1999. We incurred a net loss of $5,163,141 in the nine months ended September
30, 1999. We anticipate future losses, and we can give no assurance that we will
ever generate substantial revenues from our business, or achieve profitability.
If we continue to incur operating losses, then the value of our common stock
will likely decline and you could lose your investment.
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.
IF WE CANNOT RAISE SIGNIFICANT ADDITIONAL FUNDS, THEN WE WILL LIKELY FACE
BANKRUPTCY AND YOU COULD LOSE YOUR INVESTMENT
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. If
that happens, you could lose your entire investment. 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.
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WE FACE INTENSE COMPETITION FROM OTHER MANUFACTURERS OF GENERIC DRUGS
In order to succeed in the generic drug business, we need to achieve a
significant share of the market for each generic drug we market. 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.
IF THE BOSTON STOCK EXCHANGE DELISTS OUR COMMON STOCK, WE WILL HAVE GREATER
DIFFICULTY RAISING THE CAPITAL WE NEED TO CONTINUE OPERATIONS
Our common stock has been delisted from the Nasdaq Stock Market and is
listed on the Boston Stock Exchange. The common stock is also quoted on the OTC
Bulletin Board. If the common stock was delisted by the Boston Stock Exchange,
then public perception of the value of the common stock could be materially
adversely affected. You could lose your investment and we could face greater
difficulty raising capital necessary for our continued operations.
We received a notice from the Boston Stock Exchange on April 12, 1999
informing us that our common stock did not meet the requirements for continued
listing. The Boston Stock Exchange requires a minimum of $500,000 in
stockholders' equity for continued listing. As of March 31, 1999, we had a
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 our common
stock remains listed on the Boston Stock Exchange. Our common stock could face
delisting action again, however, if we do not maintain the minimum stockholders
equity or other listing requirements.
IF OUR COMMON STOCK BECOMES SUBJECT TO PENNY STOCK RULES, YOU MAY HAVE
GREATER DIFFICULTY SELLING YOUR 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 associated risks.
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If our common stock is delisted from the Boston Stock Exchange, then
trading in the common stock will 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 their
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
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 December 28, 1999,
63,724,946 shares of common stock were 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 December 28, 1999, we were obligated to issue up to
approximately 36,000,000 additional shares of common stock upon the conversion
or exercise of convertible securities and options. Because our certificate of
incorporation authorizes a maximum of 75,000,000 shares of common stock, if all
of the holders of these convertible securities exercised their rights to acquire
common stock, we would not be able to honor all of our obligations. We intend to
seek the approval of our stockholders for an increase in our authorized shares,
but we cannot assure you that we will obtain such approval. If we are unable to
meet our obligations to issue additional shares of common stock, we would face
material adverse consequences. Also, 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. 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.
THE VALUE OF THE COMMON STOCK FLUCTUATES WIDELY AND YOU COULD LOSE MONEY ON
YOUR 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. Over the past twelve months, the
common stock has fluctuated between approximately $.89 and approximately $.05,
and was approximately $.34 on January 10, 2000. 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 your investment. Also, when the
market price of a stock has been volatile, holders of that stock have often
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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 and we would have to divert
management time and attention away from operations. A lawsuit based on the
volatility of the stock price in whole or in part could seriously harm our
business and your investment.
WE COULD FACE A SIGNIFICANT INTERRUPTION IN OUR OPERATIONS CAUSED BY YEAR
2000 ISSUES
We have not completed an exhaustive analysis of potential Year 2000 issues,
and consequently we cannot rule out the chance that we could face serious
operational problems as a result of the Year 2000 year change.
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.
Although the century change has already occurred, Year 2000 issues could still
arise. We have not conducted a comprehensive 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. Because we have not completed a review of potential Year 2000 issues,
we cannot rule out the possibility that a significant problem 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, Generic
Distributors and Able presently carry product liability insurance in amounts
that we 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 a 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
Before we can market any generic drug, we must first obtain FDA approval of
the proposed drug and of the active drug raw materials that we use. In many
instances, our approvals cover only one source of raw materials. 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 to use a
different manufacturer 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 and we have resumed manufacturing the product.
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements that involve substantial
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risks and uncertainties. You can identify these statements by forward-looking
words such as "may," "will," "expect," "anticipate," "believe," "estimate,"
"continue" and similar words. You should read statements that contain these
words carefully because they: (1) discuss our future expectations; (2) contain
projections of our future operating results or financial condition; or (3) state
other "forward-looking" information. We believe it is important to communicate
our expectations to our investors. There may be events in the future, however,
that we are not accurately able to predict or over which we have no control. The
risk factors listed in this prospectus, as well as any cautionary language in
this prospectus, provide examples of risks, uncertainties and events that may
cause our actual results to be materially worse than the expectations we
describe in our forward-looking statements. Before you invest in our common
stock, you should be aware that the occurrence of any of the events described in
the risk factors and elsewhere in this prospectus could materially and adversely
affect our business. If that happens, the trading price of our common stock
could decline and you could lose all or part of your investment.
USE OF PROCEEDS
All of the shares of common stock offered by this prospectus are being
offered by the selling stockholder. We received proceeds from the sale of the
shares of convertible preferred stock that were converted, or are convertible,
into the shares of common stock offered in this prospectus. This money was used
for working capital and general corporate purposes. We will not receive any
additional proceeds from the sale of shares by the selling stockholder. For
information about the selling stockholder, see "Selling Stockholder."
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently intend to retain earnings, if any, to fund our business, and therefore
we do not anticipate paying cash dividends in the foreseeable future. If we ever
earn income on which we would be entitled to declare or pay dividends, we expect
that our Board of Directors would decide whether to pay dividends after taking
into account various factors including our financial condition, results of
operations, current and anticipated cash needs, and plans for expansion.
SELLING STOCKHOLDER
All of the 5,000,000 shares offered by this prospectus are being registered
for sale for the account of selling stockholder. As noted in the following
table, the selling stockholder will obtain the common stock offered under this
prospectus by converting or exercising certain convertible securities of DynaGen
that it now holds. The selling stockholder holds shares of Series J Preferred
Stock and Series K Preferred Stock, which we issued to it in a private
investment transaction in July 1999.
The table below includes, in the total number of shares offered, 5,000,000
shares of common stock that have been issued or are issuable upon conversion of
shares of Series J Preferred Stock and Series K Preferred Stock. Pursuant to the
terms of the Series J Preferred Stock, the selling stockholder may convert
shares of Series J Preferred Stock to acquire shares of common stock at a
conversion price equal to 80% of the market price of the common stock for three
of the five days preceding the conversion.
We will not receive any portion of the proceeds from the sale of shares of
common stock by the selling stockholder.
Based on the information supplied to DynaGen by the selling stockholder,
the following table sets forth certain information regarding the approximate
number of shares owned by the selling stockholder as of January 3, 2000, and as
adjusted to reflect the sale by the selling stockholder of the shares of common
stock offered by this prospectus. The selling stockholder has not held any
office nor maintained any material relationship with DynaGen, or any of our
predecessors or affiliates, over the past three years.
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<TABLE>
<CAPTION>
Shares Shares
Beneficially Owned Beneficially Owned
Prior to Offering(1) Number After Offering(1)(2)
------------------------------ of Shares ---------------------
Name AND ADDRESS Number Percent(3) Offered(4) Number Percent
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<S> <C> <C> <C> <C> <C>
Kenilworth, LLC(5)
Corporate Centre, Windward 1
West Bay Road
P.O. Box 31106
SMB Grand Cayman
Cayman Islands....................... 7,352,941(5) 11.5% 5,000,000 2,352,941 3.7%
* Less than 1.0%.
(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission
and generally includes voting or investment power with respect to securities. Except as indicated, each
person possesses sole voting and investment power with respect to all of the shares of common stock owned
by such person, subject to community property laws where applicable. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person, shares of common stock
subject to options and convertible securities held by that person that are currently exercisable, or
become exercisable within 60 days of the date of this prospectus are deemed outstanding. Such shares,
however, are not deemed outstanding for the purpose of computing the percentage ownership of any other
person. The information as to each person has been furnished by such person.
(2) Assumes that all shares of common stock offered in this prospectus will be sold.
(3) Based on 63,724,946 shares of common stock issued and outstanding as of December 28, 1999.
(4) Mr. David Sims is the individual who has voting and investment decision authority over this investment.
(5) Includes shares of Common Stock issuable upon conversion of Series J Preferred Stock and Series K
Preferred Stock. The terms of the Series J Preferred and Series K Preferred Stock prohibit conversion
into shares of Common Stock to the extent that the holder and its affiliates immediately after such
conversion would beneficially own more than 4.99% of the shares of Common Stock then outstanding.
</TABLE>
PLAN OF DISTRIBUTION
The shares offered by this prospectus may be sold from time to time by the
selling stockholder, who consist of the persons named under "Selling
Stockholder" above and those persons' pledgees, donees, transferees or other
successors in interest. The selling stockholder may sell the shares on the OTC
Bulletin Board, on the Boston Stock Exchange or otherwise, at market prices or
at negotiated prices. They may sell shares by one or a combination of the
following:
o a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by the broker
or dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which a broker
solicits purchasers;
o an exchange distribution in accordance with the rules of such exchange;
o privately negotiated transactions;
o short sales;
10
<PAGE>
o if such a sale qualifies, in accordance with Rule 144 promulgated under
the Securities Act rather than pursuant to this prospectus; and
o any other method permitted pursuant to applicable law.
In making sales, brokers or dealers engaged by the selling stockholder may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from the selling stockholder in amounts to be
negotiated prior to the sale. The selling stockholder and any broker-dealers
that participate in the distribution may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act of 1933, and any proceeds or
commissions received by them, and any profits on the resale of shares sold by
broker-dealers, may be deemed to be underwriting discounts and commissions.
If the selling stockholder notifies us that a material arrangement has been
entered into with a broker-dealer for the sale of shares through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
by a broker or dealer, we will file a prospectus supplement, if required
pursuant to Rule 424(c) under the Securities Act of 1933, setting forth:
o the name of each of the participating broker-dealers,
o the number of shares involved,
o the price at which the shares were sold,
o the commissions paid or discounts or concessions allowed to the
broker-dealers, where applicable,
o a statement to the effect that the broker-dealers did not conduct any
investigation to verify the information set out or incorporated by
reference in this prospectus, and
o any other facts material to the transaction.
We are paying the expenses incurred in connection with preparing and filing
this prospectus and the registration statement to which it relates, other than
selling commissions.
In addition, in the event the selling stockholder sells short shares of
common stock, this prospectus may be delivered in connection with such short
sales and the shares offered by this prospectus may be used to cover such short
sales. To the extent, if any, that the selling stockholder may be considered an
"underwriter" within the meaning of the Securities Act, the sale of the shares
by them shall be covered by this prospectus.
LEGAL MATTERS
Foley, Hoag & Eliot LLP, Boston, Massachusetts, has advised us with respect
to the validity of the shares of common stock offered by this prospectus.
EXPERTS
The financial statements for each of the two fiscal years ended December
31, 1998 and 1997, incorporated by reference in this prospectus and in the
registration statement of which this prospectus is a part, have been audited by
Wolf & Company, P.C., independent public accountants, as indicated in their
report with respect to such financial statements. The incorporation by reference
in this prospectus and in the registration statement of which it is part, is in
reliance upon such reports given upon the authority of Wolf & Company, P.C. as
experts in accounting and auditing.
11
<PAGE>
MATERIAL CHANGES AND DEVELOPMENTS
On November 30, 1999, we completed a loan transaction with BankBoston, N.A.
The loan agreement provides us with a revolving credit in the maximum amount of
$14,000,000, secured by a lien on substantially all of our assets. The total
amount available for borrowing under the loan agreement depends on the value of
our assets securing the loan from time to time. We have borrowed approximately
$7,000,000 under this credit arrangement. With money borrowed under the
BankBoston loan transaction, we repaid Superior's secured loan from Huntington
Bank, GDI's secured loan from Fleet Bank and Able's obligations under an
accounts receivable factoring and equipment sale and leaseback arrangement. In
connection with the BankBoston loan, we renegotiated certain provisions of our
existing subordinated loan arrangement. We anticipate that the new loan
arrangement will provide us with a more efficient source of working capital than
the former set of loans through each subsidiary. We can give no assurance,
though, that the completion of this transaction or the availability of credit
under the BankBoston loan agreement will help us achieve profitability.
In December 1999, we announced that we had obtained a 20% ownership
interest in a development-stage company that intends to enter an internet-based
drug distribution business. We obtained the equity interest in exchange for
strategic planning and advisory services that we provided to the new company.
Certain of our officers and directors own approximately 20% of the new company.
We can give investors no assurance that the company will be able successfully to
implement its business plan or that our interest in this company will be
profitable.
DISCLOSURE OF SEC POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
DynaGen's Restated Certificate of Incorporation and By-Laws provide that we
will indemnify our directors and officers, to the fullest extent permitted under
Delaware law, including in circumstances in which indemnification is otherwise
discretionary under Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons of DynaGen,
pursuant to the foregoing provisions, or otherwise, we have been advised that,
in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We file annual reports, quarterly reports, current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any of our SEC filings at the SEC's public reference room
at 450 Fifth Street, N.W., Washington D.C. 20549. You may call the SEC at
1-800-SEC-0330 for further information about the public reference room. Our SEC
filings also are available to the public on the SEC's website at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" information from certain of
our other SEC filings. This means that we can disclose information to you by
referring you to those other filings, and the information incorporated by
reference is considered to be part of this prospectus. In addition, certain
information that we file with the SEC after the date of this prospectus will
automatically update, and in some cases supersede, the information contained or
otherwise incorporated by reference in this prospectus. We are incorporating by
reference the information contained in the following SEC filings (File. No.
1-11352):
o Our Annual Report on Form 10-KSB for the year ended December 31, 1998;
o Our Quarterly Report on Form 10-QSB for the three months ended March
31, 1999;
o Our Quarterly Report on Form 10-QSB for the three months ended June 30,
1999;
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<PAGE>
o Our Quarterly Report on Form 10-QSB for the three months ended
September 30, 1999;
o The "Description of Securities" contained in our Registration Statement
on Form 8-A filed August 19, 1992 together with all amendments and
reports filed for the purpose of updating that description;
o All other documents we filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of the fiscal year covered by the Annual
Report referred to above; and
o any filings we make with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 (i) subsequent to the
initial filing of this prospectus and prior to the date it is declared
effective and (ii) subsequent to the date of this prospectus and prior
to the termination of this offering. Information in these filings will
be incorporated as of the filing date.
You may request copies of these filings, at no cost, by writing or
telephoning us as follows:
Investor Relations
DynaGen, Inc.
1000 Winter Street, Suite 2700
Waltham, Massachusetts 02154
Telephone: (781) 890-0021
This prospectus is part of a registration statement on Form S-3 we filed
with the SEC under the Securities Act of 1933. This prospectus does not contain
all of the information contained in the registration statement. For further
information about us and our common stock, you should read the registration
statement and the exhibits filed with the registration statement.
13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses to be paid by the
Registrant in connection with the issuance and distribution of the shares of
common stock being registered. All amounts shown are estimates, except for the
Securities and Exchange Commission registration fee. The Registrant will pay all
expenses in connection with the distribution of the shares of common stock being
sold by the selling stockholder (including fees and expenses of counsel for the
Registrant), except for the underwriting discount and for legal fees of any
counsel selected by any particular selling stockholder.
Securities and Exchange Commission registration fee............. $ 453.90
Boston Stock Exchange listing additional shares fee............. 5,000.00
Accounting fees and expenses.................................... 2,000.00
Legal fees and expenses......................................... 7,000.00
Blue sky fees and expenses, including legal fees................ 1,000.00
Printing, EDGAR formatting and mailing expenses................. 2,000.00
Miscellaneous................................................... 2,546.10
--------------
Total................................................... $20,000.00
==============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(A) The Company is a Delaware corporation. Section 145 of the Delaware
General Corporation Law, as amended, provides in regard to indemnification of
directors and officers as follows:
"(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly
II-1
<PAGE>
and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in subsections
(a) and (b) of this section. Such determination shall be made, with respect to a
person who is a director or officer at the time of such determination, (1) by
the board of directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) by a committee
of such directors designated by majority vote of such directors, even though
less than a quorum, or (3) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (included attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by former director or officers or employees and agents
may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents so that
any person who was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director,
II-2
<PAGE>
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses."
(B) Article 9 of the Company's Certificate of Incorporation contains
the following provision relating to the indemnification of directors and
officers:
"To the maximum extent permitted by Section 102(b)(7) of the General
Corporation Law of Delaware, a director of this Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit."
(C) Article VII of the Company's By-laws contains the following provisions
relating to indemnification of officers and directors:
"Reference is made to Section 145 and any other relevant provisions of
the General Corporation Law of the State of Delaware. Particular reference is
made to the class of persons, hereinafter called "Indemnitees," who may be
indemnified by a Delaware corporation pursuant to the provisions of such Section
145, namely, any person or the heirs, executors, or administrators of such
person, who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that such
person is or was a director, officer, employee, or agent of such corporation or
is or was serving at the request of such corporation as a director, officer,
employee, or agent of such corporation or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise. The
Corporation shall, and is hereby obligated to, indemnify the Indemnitees, and
each of them in each and every situation where the Corporation is obligated to
make such indemnification pursuant to the aforesaid statutory provisions. The
Corporation shall indemnify the Indemnitees, and each of them, in each and every
situation where, under the aforesaid statutory provisions, the Corporation is
not obligated, but is nevertheless permitted or empowered, to make such
indemnification, it being understood that, before making such indemnification
with respect to any situation covered under this sentence, (i) the Corporation
shall promptly make or cause to be made, by any of the methods referred to in
Subsection (d) of such Section 145, a determination as to whether each
Indemnitee acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Corporation, and, in the case of
any criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful, and (ii) that no such indemnification shall be made unless
it is determined that such Indemnitee acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, in the case of any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful."
II-3
<PAGE>
The effect of these provisions would be to permit indemnification by
the Company of for, among other liabilities, liabilities arising under the
Securities Act of 1933 (the "Securities Act").
ITEM 16. EXHIBITS
EXHIBIT NO. NAME OF EXHIBIT
- -----------
4.1 Specimen certificate for common stock (filed as Exhibit 4a to
the Company's Registration Statement on Form S-1, No.
33-31836-B and incorporated by reference)
4.2 Subscription Agreement for Series J Preferred Stock dated July
1999 (filed as Exhibit 10.1 to the Company's Quarterly Report
of Form 10-QSB for the quarter ended September 30, 1999 and
incorporated herein by reference)
4.3 Certificate of Designations, Preferences, and Rights of Series
J Preferred Stock (filed as Exhibit 3.3 to the Company's
Quarterly Report of Form 10-QSB for the quarter ended September
30, 1999 and incorporated herein by reference)
4.4 Subscription Agreement for Series K Preferred Stock (filed as
Exhibit 10.3 to the Company's Quarterly Report of Form 10-QSB
for the quarter ended September 30, 1999 and incorporated
herein by reference)
4.5 Certificate of Designations, Preferences, and Rights of Series
J Preferred Stock (filed as Exhibit 3.4 to the Company's
Quarterly Report of Form 10-QSB for the quarter ended September
30, 1999 and incorporated herein by reference)
5.1 Opinion of Foley, Hoag & Eliot LLP
10.1 Loan and Security Agreement with BankBoston, N.A. dated
November 30, 1999
23.1 Consent of Wolf & Company, P.C.
23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (included on signature page)
- --------------
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required to Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8, or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the
II-4
<PAGE>
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
(3) To remove from registration, by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 that is incorporated by reference to
the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial BONA FIDE
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Waltham, Commonwealth of Massachusetts, January 12,
2000.
DYNAGEN, INC.
By /s/ C. Robert Cusick
.....................................
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of DynaGen, Inc., hereby
severally constitute and appoint C. Robert Cusick and Dhananjay G. Wadekar, and
each of them singly, our true and lawful attorneys with full power to them, and
each of them singly, to sign for us and in our names in the capacities indicated
below, any and all pre-effective and post-effective amendments to the
Registration Statement on Form S-3 filed herewith, and any subsequent
Registration Statement for the same offering which may be filed under Rule
462(b) under the Securities Act of 1933, and generally to do all such things in
our names and on our behalf in our capacities as officers and directors to
enable DynaGen, Inc. to comply with the provisions of the Securities Act of 1933
and all requirements of the Securities and Exchange Commission, hereby ratifying
and confirming our signatures as they may be signed by our said attorneys, or
any of them, to any and all amendments to said Registration Statement or to any
subsequent Registration Statement for the same offering that may be filed under
said Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated as of January 12, 2000.
<TABLE>
<CAPTION>
SIGNATURE DATE TITLE
--------- ---- -----
<S> <C> <C>
President, Chief Executive Officer, Treasurer
/S/ C. ROBERT CUSICK January 12, 2000 and Director
....................................................... (PRINCIPAL EXECUTIVE OFFICER)
C. ROBERT CUSICK
/S/ DHANANJAY G. WADEKAR January 12, 2000 Executive Vice President and Director
....................................................... (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
DHANANJAY G. WADEKAR
/S/ F. HOWARD SCHNEIDER January 12, 2000 Director
.......................................................
F. HOWARD SCHNEIDER
/S/ STEVEN GEORGIEV January 12, 2000 Director
.......................................................
STEVEN GEORGIEV
</TABLE>
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<PAGE>
EXHIBIT INDEX
EXHIBIT NO. NAME OF EXHIBIT
- ------------
4.1 Specimen certificate for common stock (filed as Exhibit 4a to
the Company's Registration Statement on Form S-1, No.
33-31836-B and incorporated by reference)
4.2 Subscription Agreement for Series J Preferred Stock dated July
1999 (filed as Exhibit 10.1 to the Company's Quarterly Report
of Form 10-QSB for the quarter ended September 30, 1999 and
incorporated herein by reference)
4.3 Certificate of Designations, Preferences, and Rights of Series
J Preferred Stock (filed as Exhibit 3.3 to the Company's
Quarterly Report of Form 10-QSB for the quarter ended September
30, 1999 and incorporated herein by reference)
4.4 Subscription Agreement for Series K Preferred Stock (filed as
Exhibit 10.3 to the Company's Quarterly Report of Form 10-QSB
for the quarter ended September 30, 1999 and incorporated
herein by reference)
4.5 Certificate of Designations, Preferences, and Rights of Series
J Preferred Stock (filed as Exhibit 3.4 to the Company's
Quarterly Report of Form 10-QSB for the quarter ended September
30, 1999 and incorporated herein by reference)
5.1 Opinion of Foley, Hoag & Eliot LLP
10.1 Loan and Security Agreement with BankBoston, N.A. dated
November 30, 1999
23.1 Consent of Wolf & Company, P.C.
23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (included on signature page)
II-7
EXHIBIT 5.1
FOLEY, HOAG & ELIOT LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109-2170
---------
TELEPHONE 617-832-1000
FACSIMILE 617-832-7000
http://www.fhe.com
---------
1747 Pennsylvania Ave., N.W.
Suite 1200
WASHINGTON, D.C. 20006
TEL: 202-223-1200
FAX: 202-785-6687
January 12, 2000
DynaGen, Inc.
1000 Winter Street
Suite 2700
Waltham, MA 02451
Gentlemen:
We are familiar with the Registration Statement on Form S-3 (the
"Registration Statement") to which this opinion is an exhibit, to be filed by
DynaGen, Inc., a Delaware corporation (the "Company"), with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. The
Registration Statement relates to the proposed public offering by security
holders of the Company of a total of 5,000,000 shares (the "Shares") of the
Company's common stock, $0.01 par value per share ("Common Stock"), including
Shares issuable upon conversion of shares of Series J Preferred Stock, $0.01 par
value per share ("Series J Stock") and Series K Preferred Stock, $0.01 par value
per share ("Series K Stock") of the Company held by such security holders.
In arriving at the opinion expressed below, we have examined and relied on
the following documents:
(1) the Restated Certificate of Incorporation and By-laws of the
Company, each as amended as of the date hereof; and
(2) records of meetings and consents of the Board of Directors of the
Company relating to the issuance of the Shares provided to us by the
Company.
In addition, we have examined and relied on the originals or copies certified or
otherwise identified to our satisfaction of all such corporate records of the
Company and such other instruments and other certificates of public officials,
officers and representatives of the Company and such other persons, and we have
made such investigations of law, as we have deemed appropriate as a basis for
the opinion expressed below. In such examination, we have assumed, without
independent verification, the genuineness of all signatures (whether original or
photostatic), the authenticity of all documents submitted to us as originals and
the conformity to authentic original documents of all documents submitted to us
as certified or photostatic copies. We have further assumed that a sufficient
number
<PAGE>
DynaGen, Inc.
January 12, 2000
Page 2
of duly authorized and unissued shares of Common Stock will be available for
issuance at the time the shares of Series J Stock or Series K Stock are
presented for conversion in accordance with the terms thereof; and that the
consideration received by the Company in respect of each Share will be no less
than its par value.
Based upon and subject to the foregoing, it is our opinion that the Company
has taken all necessary corporate action required to authorize the issuance of
the Shares, and the Shares, when issued upon receipt of consideration therefor,
and when certificates for the same have been duly executed and countersigned and
delivered, will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
FOLEY, HOAG & ELIOT LLP
By: /s/ David A. Broadwin
------------------------
A Partner
EXHIBIT 10.1
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
- ---------------------------
- --------------------------------------------------------------------------------
November 29, 1999
THIS AGREEMENT is made between
BankBoston, N.A. (hereinafter, the "LENDER"), a national
banking association organized under the laws of the United States of
America with offices at 100 Federal Street, Boston, Massachusetts 02110
and
DynaGen, Inc. (hereinafter, in such capacity, the "LEAD
BORROWER"), a Delaware corporation, with its principal executive
offices at 1000 Winter Street, Waltham, Massachusetts, as agent for
said DynaGen, Inc; and
Able Laboratories, Inc. ("Able"), a Delaware corporation with
its principal executive offices at 1000 Winter Street, Waltham,
Massachusetts; and
Superior Pharmaceutical Company ("Superior"), an Ohio
corporation with its principal executive offices at 1000 Winter Street,
Waltham, Massachusetts; and
Generic Distributors, Inc. ("Generic"), a Delaware corporation
with its principal executive offices at 1000 Winter Street, Waltham,
Massachusetts
(Each of DynaGen, Inc., Able, Superior and Generic being hereinafter
referred to individually as a "BORROWER" and collectively as the
"BORROWERS")
in consideration of the mutual covenants contained herein and benefits to be
derived herefrom.
WITNESSETH:
ARTICLE 1 - DEFINITIONS.
- ------------------------
As herein used, the following terms have the following meanings or are
defined in the section of the within Agreement so indicated:
"ACCEPTABLE ACCOUNTS": (a) Such of the Borrowers' Accounts as arise in
the ordinary course of the Borrowers' business for goods sold
-1-
<PAGE>
and/or services rendered by any of the Borrowers, which
Accounts have been determined by the Lender to be satisfactory
and have been earned by performance and are owed to any of the
Borrowers by such of the Borrowers' trade customers as the
Lender determines to be satisfactory, in the Lender's sole
discretion in each instance, and as to which Accounts, the
Lender has a perfected security interest which is prior and
superior to all security interests, claims and Encumbrances.
(b) The following is a partial listing of those types
of Accounts which are not Acceptable Accounts:
(i) Any which is more than ninety (90) days after the
invoice date thereof or more than sixty (60) days after the
due date thereof.
(ii) Any which is owed by any Account Debtor twenty-five
percent (25%) or more of whose Accounts are not acceptable by
virtue of the provisions of Section(b)(i), above.
(iii) Any which, when aggregated with all of the accounts
of that Account Debtor, exceeds 25% of the then aggregate of
Acceptable Accounts.
(iv) Any which arises out of the sale by any Borrower of
goods consigned or delivered to the Borrowers or to the
Account Debtor on sale or return terms (whether or not
compliance has been made with Section 2-326 of the Uniform
Commercial Code).
(v) Any which arises out of any sale made on a basis
other than upon terms usual to the business of the Borrowers.
(vi) Any which arises out of any sale made on a "bill
and hold," dating, or delayed shipping basis.
(vii) Any which is owed by any Account Debtor whose
principal place of business is not within the United States,
the District of Columbia, or Puerto Rico, other than for those
Accounts as to which the Borrowers have furnished a letter of
credit or credit insurance reasonably satisfactory to the
Lender.
(viii) Any which is owed by any Related Entity.
-2-
<PAGE>
(ix) Any as to which the Account Debtor holds or is
entitled to any claim, counterclaim, set off, or chargeback.
(x) Any which is evidenced by a promissory note.
(xi) Any which is owed by any person employed by, or a
salesperson of, any Borrower.
(xii) Any which is owed by Novopharm USA, Inc. unless the
Lender is in receipt of a confirmation from Novopharm USA,
Inc. in the form of EXHIBIT 1-1 hereto dated as of a current
date.
(xiii) Any which the Lender in its sole discretion
considers unacceptable for any reason.
"ACCEPTABLE INVENTORY": Such of the Borrowers' finished goods
Inventory, at such locations, and of such types, character,
qualities and quantities, as the Lender in its sole discretion
from time to time determines to be acceptable for borrowing,
as to which Inventory, the Lender has a perfected security
interest which is prior and superior to all security
interests, claims, and Encumbrances. Without limiting the
foregoing, Acceptable Inventory shall not include Inventory
which is six (6) months or less from its expiration date.
"ACCOUNTS" include, without limitation, "accounts" as defined in the
UCC, and also all: accounts, accounts receivable, credit card
receivables, notes, drafts, acceptances, and other forms of
obligations and receivables and rights to payment for credit
extended and for goods sold or leased, or services rendered,
whether or not yet earned by performance; all "contract
rights" as formerly defined in the UCC; all Inventory which
gave rise thereto, and all rights associated with such
Inventory, including the right of stoppage in transit; all
reclaimed, returned, rejected or repossessed Inventory (if
any) the sale of which gave rise to any Account.
"ACCOUNT DEBTOR": has the meaning given that term in the UCC.
-3-
<PAGE>
"AFFILIATE": means, with respect to any two Persons, a relationship in
which (a) one holds, directly or indirectly, not less than
Twenty Five Percent (25%) of the capital stock, beneficial
interests, partnership interests, membership interests or
other equity interests of the other; or (b) one has, directly
or indirectly, Control of the other; or (c) not less than
Twenty Five Percent (25%) of their respective ownership is
directly or indirectly held by the same third Person.
"APPLICABLE MARGIN": shall mean, as applicable, for the period from
closing until the Applicable Margin is adjusted in accordance with (b), below,
the amounts set forth in (a) below, and thereafter, the amounts set forth in (b)
below:
(a)
===============================================================
Revolving Base Margin Revolving LIBOR Margin
---------------------------------------------------------------
100 basis points 275 basis points
===============================================================
(b) The Base Margin and the LIBOR Margin shall be adjusted based upon the
following performance covenants:
=========================================================================
Tier Ratio of Consolidated Revolving Base Revolving LIBOR
Operating Cash Flow to Margin Margin
Total Debt Service
-------------------------------------------------------------------------
1 Less than or equal to 100 basis 275 basis points
1.25:1.0 points
-------------------------------------------------------------------------
2 Greater than 1.25:1.0 75 basis points 250 basis points
but less than or equal to
1.50:1.0
=========================================================================
-4-
<PAGE>
=========================================================================
3 Greater than 1.50:1.0 50 basis points 225 basis points
=========================================================================
For purposes of determining the Base Margin and the LIBOR
Margin, the foregoing performance measures shall be tested
quarterly. The initial adjustment to the Base Margin and the
LIBOR Margin shall occur upon the receipt by the Lender of the
Borrower's audited financial statements for the fiscal year
ending December 31, 1999. Thereafter, the Base Margin and the
LIBOR Margin shall be adjusted quarterly commencing March 31,
2000, determined on a rolling twelve month basis. The Base
Margin and the LIBOR Margin shall be adjusted after the Lead
Borrower delivers to the Lender the consolidated monthly
financial statements (with readjustment upon receipt of the
annual financial statements, if applicable) required under
Section 10-5(b)(i) below.
"AVAILABILITY": is defined in Section 3-1(b).
"BANKRUPTCY CODE": Title 11, U.S.C., as amended from time to time.
"BASE RATE": The Base Rate announced from time to time by the Lender.
Any change in such Base Rate shall be effective, for purposes
of the calculation of interest due hereunder, when made
effective generally by the Lender.
"BASE MARGIN LOAN": Any Revolving Credit Loan bearing interest at the
Base Rate.
"BORROWERS": is defined in the Preamble.
"BUSINESS DAY": Any day other than (a) a Saturday, Sunday; (b) a day on
which the Lender is not open to the general public to conduct
business; or (c) a day on which banks in Boston, Massachusetts
-5-
<PAGE>
generally are not open to the general public for the purpose
of conducting commercial banking business.
"CAPITAL EXPENDITURES": (a) The expenditure of monies and/or the
incurrence of liabilities which, in accordance with GAAP,
should be reflected by the capitalization of such expenditures
or incurrences on the books of the Borrowers, and (b) the
leasing of personal property by any of the Borrowers, which,
in accordance with GAAP, should be reflected by the
capitalization of such lease on the books of the Borrowers.
For purposes of this Agreement, (a) the entire amount so
capitalized and (b) the entire amount to be paid under the
personal property lease shall be included in the year in which
the subject asset initially is acquired or leased by a
Borrower.
"CAPITAL LEASE": Any lease which should be capitalized in accordance
with GAAP.
"CHANGE IN CONTROL":The occurrence of any of the following:
(a) The acquisition, by any group of persons (within the meaning
of the Securities Exchange Act of 1934, as amended) or by any
Person, of beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission) of 25% or
more of the issued and outstanding capital stock of the Lead
Borrower having the right, under ordinary circumstances, to
vote for the election of directors of the Lead Borrower.
(b) More than half of the persons who are directors of the Lead
Borrower (i) as of the date of this Agreement cease to serve
as such directors or (ii) are Persons who were neither
nominated by the existing board of directors nor appointed by
the directors so nominated.
"CHATTEL PAPER": has the meaning given that term in the UCC.
"COLLATERAL": is defined in Section 4-1.
-6-
<PAGE>
"COLLATERAL MANAGEMENT FEE" is defined in Section 3-12(c).
"COMMITMENT": shall mean Fourteen Million Dollars ($14,000,000.00).
"COMMITMENT FEE": is defined in Section 3-12.
"CONSOLIDATED INTEREST EXPENSE": shall mean, with respect to any
Person, the aggregate consolidated expense of such Person and
its subsidiaries on account of interest and fees paid on
account of or with respect to Indebtedness (including, without
limitation, the Liabilities), determined in accordance with
GAAP.
"CONSOLIDATED NET INCOME": shall mean, with respect to any Person, for
any fiscal period, the consolidated net income (or deficit) of
such Person and its subsidiaries, after deduction of all
expenses, taxes, and other proper charges, determined in
accordance with GAAP.
"CONSOLIDATED OPERATING CASH FLOW" shall mean the sum of
(i)Consolidated Net Income before taxes, plus (ii)
Consolidated Interest Expense, plus (iii) depreciation,
amortization and other noncash charges deducted in the
calculation of Consolidated Net Income, minus (iv)
extraordinary income minus (v) non-cash income, minus (vi)
income taxes paid in cash, minus (vii) internally funded
Capital Expenditures, all as determined in accordance with
GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" shall mean, as to any Person, the
difference between total assets of such Person and its
subsidiaries and total liabilities of such Person and its
subsidiaries, plus all indebtedness subordinated to the Lender
on terms acceptable to the Lender less the sum of:
(a) the total book value of all assets of such
Person and its subsidiaries properly classified as
intangible assets under GAAP, including items such
as goodwill, unamortized
-7-
<PAGE>
debt discount and expense, trademarks, trade names,
service marks, copyrights, patents and licenses;
and
(b) all amounts representing the write-up in the
book value of any assets of such Person and its
subsidiaries resulting from a revaluation thereof;
and
(c) to the extent not already deducted, all
reserves; and
(d) the value of minority interests in
subsidiaries; and
(e) the aggregate amount of all loans made by such
Person and its subsidiaries to any officer,
employee or shareholder thereof.
"CONTROL": Person(s) shall be deemed to Control another Person if such
Person(s) directly or indirectly possess the power to direct
or cause the direction of the management and policies of such
other Person, whether through ownership of voting securities,
by contract, or otherwise.
"COSTS OF COLLECTION" includes, without limitation, all reasonable
attorneys' fees and reasonable out-of-pocket expenses incurred
by the Lender's attorneys, and all reasonable costs incurred
by the Lender in the administration of the Liabilities and/or
the Loan Documents, including, without limitation, reasonable
costs and expenses associated with travel on behalf of the
Lender, which costs and expenses are directly or indirectly
related to or in respect of the Lender's: administration and
management of the Liabilities; negotiation, documentation, and
amendment of any Loan Document; or efforts to preserve,
protect, collect, or enforce the Collateral, the Liabilities,
and/or the Lender's Rights and Remedies and/or any of the
Lender's rights and remedies against or in respect of any
guarantor or other person liable in respect of the Liabilities
(whether or not suit is instituted in connection with such
efforts). The Costs of Collection are Liabilities.
"CONVERT, CONVERSION AND CONVERTED" The conversation of a loan from one
type to loans of another type.
-8-
<PAGE>
"DEPOSIT ACCOUNT": has the meaning given that term in the UCC.
"DOCUMENTS": has the meaning given that term in the UCC.
"DILUTION RESERVE: as of the date of calculation, an amount equal to
(x) the average percent dilution of the Borrowers' Accounts
for the immediately preceding twelve (12) months in excess of
five percent (5%), multiplied by (y) the Acceptable Accounts.
In no event shall the Dilution Reserve ever be less than zero.
"DOCUMENTS OF TITLE": has the meaning given that term in the UCC.
"EARLY TERMINATION FEE": is defined in Section 3-12(e).
"EMPLOYEE BENEFIT PLAN": as defined in ERISA.
"ENCUMBRANCE": each of the following:
(a) any security interest, mortgage, pledge,
hypothecation, lien, attachment, or charge of any kind
(including any agreement to give any of the foregoing); the
interest of a lessor under a Capital Lease; conditional sale
or other title retention agreement; sale of accounts
receivable or chattel paper; or other arrangement pursuant to
which any Person is entitled to any preference or priority
with respect to the property or assets of another Person or
the income or profits of such other Person or which
constitutes an interest in property to secure an obligation;
each of the foregoing whether consensual or non-consensual and
whether arising by way of agreement, operation of law, legal
process or otherwise.
(b) The filing of any financing statement under the
UCC or comparable law of any jurisdiction.
"ENVIRONMENTAL LAWS":(a) any and all federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes,
decrees or requirements which regulates or relates to, or
imposes
-9-
<PAGE>
any standard of conduct or liability on account of or in
respect to environmental protection matters, including,
without limitation, Hazardous Materials, as is now or
hereafter in effect; and
(b) the common law relating to damage to Persons or
property from Hazardous Materials.
"EQUIPMENT" includes, without limitation, "equipment" as defined in the
UCC, and also all motor vehicles, rolling stock, machinery,
office equipment, plant equipment, tools, dies, molds, store
fixtures, furniture, and other goods, property, and assets
which are used and/or were purchased for use in the operation
or furtherance of the Borrower's business, and any and all
accessions, additions thereto, and substitutions therefor.
"EQUIPMENT CAP": the following amounts for the following periods:
=====================================================================
PERIOD CAP
=====================================================================
November 29, 1999 through December 31, 1999 $750,000.00
---------------------------------------------------------------------
January 1, 2000 through January 31, 2000 $687,500.00
---------------------------------------------------------------------
February 1, 2000 through February 29, 2000 $625,000.00
---------------------------------------------------------------------
March 1, 2000 through March 31, 2000 $562,500.00
---------------------------------------------------------------------
April 1, 2000 through April 30, 2000 $500,000.00
---------------------------------------------------------------------
May 1, 2000 through May 31, 2000 $437,500.00
---------------------------------------------------------------------
June 1, 2000 through June 30, 2000 $375,000.00
---------------------------------------------------------------------
July 1, 2000 through July 31, 2000 $312,500.00
---------------------------------------------------------------------
August 1, 2000 through August 31, 2000 $250,000.00
---------------------------------------------------------------------
September 1, 2000 through September 30, 2000 $187,500.00
---------------------------------------------------------------------
October 1, 2000 through October 31, 2000 $125,000.00
---------------------------------------------------------------------
November 1, 2000 through November 30, 2000 $ 62,500.00
---------------------------------------------------------------------
December 1, 2000 and thereafter $0
=====================================================================
-10-
<PAGE>
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE": any Person which is under common control with any
Borrower within the meaning of Section 4001 of ERISA or is
part of a group which includes any Borrower and which would be
treated as a single employer under Section 414 of the Internal
Revenue Code of 1986, as amended.
"EVENTS OF DEFAULT": is defined in Article 11.
"FDA" shall mean the United States Food and Drug Administration.
"FIXTURES": has the meaning given that term in the UCC.
"GAAP": principles which are consistent with those promulgated or
adopted by the Financial Accounting Standards Board and its
predecessors (or successors) in effect and applicable to that
accounting period in respect of which reference to GAAP is
being made.
"GENERAL INTANGIBLES" includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to
payment for credit extended; deposits; amounts due to the
Borrowers; credit memoranda in favor of the Borrowers;
warranty claims; tax refunds and abatements; insurance refunds
and premium rebates; all means and vehicles of investment or
hedging, including, without limitation, options, warrants, and
futures contracts; records; customer lists; telephone numbers;
goodwill; causes of action; judgments; payments under any
settlement or other agreement; literary rights; rights to
performance; royalties; license and/or franchise fees; rights
of admission; licenses; franchises; license agreements,
including all rights of the Borrowers to enforce same;
permits, certificates of convenience and necessity, and
similar rights granted by any
-11-
<PAGE>
governmental authority; patents, patent applications, patents
pending, and other intellectual property; internet addresses
and domain names; developmental ideas and concepts;
proprietary processes; blueprints, drawings, designs,
diagrams, plans, reports, and charts; catalogs; manuals;
technical data; computer software programs (including the
source and object codes therefor), computer records, computer
software, rights of access to computer record service bureaus,
service bureau computer contracts, and computer data; tapes,
disks, semi-conductors chips and printouts; trade secrets
rights, copyrights, mask work rights and interests, and
derivative works and interests; user, technical reference, and
other manuals and materials; trade names, trademarks, service
marks, and all good will relating thereto; applications for
registration of the foregoing; and all other general
intangible property of the Borrowers in the nature of
intellectual property; proposals; cost estimates, and
reproductions on paper, or otherwise, of any and all concepts
or ideas, and any matter related to, or connected with, the
design, development, manufacture, sale, marketing, leasing, or
use of any or all property produced, sold, or leased, by the
Borrowers or credit extended or services performed, by the
Borrowers, whether intended for an individual customer or the
general business of the Borrowers, or used or useful in
connection with research by the Borrowers.
"GOODS": has the meaning given that term in the UCC.
"HAZARDOUS MATERIALS:" any (a) hazardous materials, hazardous waste,
hazardous or toxic substances, petroleum products, which (as
to any of the foregoing) are defined or regulated as a
hazardous material in or under any Environmental Law and (b)
oil in any physical state.
"INDEBTEDNESS": all indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:
(i) in
-12-
<PAGE>
respect of money borrowed (including any indebtedness which is
non-recourse to the credit of such Person but which is secured
by an Encumbrance on any asset of such Person) whether or not
evidenced by a promissory note, bond, debenture or other
written obligation to pay money; (ii) for the payment,
deferred for more than Thirty (30) days, of the purchase price
of goods or services (other than current trade liabilities of
such Person incurred in the ordinary course of business and
payable in accordance with customary practices); (iii) in
connection with any letter of credit or acceptance transaction
(including, without limitation, the face amount of all letters
of credit and acceptances issued for the account of such
Person or reimbursement on account of which such Person would
be obligated); (iv) in connection with the sale or discount of
accounts receivable or chattel paper of the Borrower; (v) on
account of deposits or advances; and (vi) as lessee under
Capital Leases. "Indebtedness" of any Person shall also
include: (x) Indebtedness of others secured by an Encumbrance
on any asset of such Person, whether or not such Indebtedness
is assumed by such Person; (y) Any guaranty, endorsement,
suretyship or other undertaking pursuant to which that Person
may be liable on account of any obligation of any third party;
and (z) the Indebtedness of a partnership or joint venture in
which such Person is a general partner or joint venturer, to
the extent of the maximum liability of such Person for such
Indebtedness.
"INDEMNIFIED CLAIM": is defined in Section 15-11.
"INDEMNIFIED PERSON": is defined in Section 15-11.
"INSTRUMENTS": has the meaning given that term in the UCC.
"INTEREST PERIOD": (a) With respect to each LIBOR Loan, the period
commencing on the date of the making or continuation of or
conversion to such LIBOR Loan and ending one, two, three or
six months
-13-
<PAGE>
thereafter, as the Lead Borrower may elect in the applicable
Notice of Borrowing or Conversion.
(b) With respect to each Base Margin Loan, the
period commencing on the date of the making or continuation of
or conversion to such Base Margin Loan and ending on that date
(i) as of which the subject Base Margin Loan is converted to a
LIBOR Loan, as the Lead Borrower may elect in the applicable
Notice of Borrowing or Conversion, or (ii) on which the
subject Base Margin Loan is paid by the Borrowers. Provided
that:
(i) if any Interest Period with respect to a
LIBOR Loan would otherwise end on a day that is not a
LIBOR Business Day, that Interest Period shall be
extended to the next succeeding LIBOR Business Day
unless the result of such extension would be to carry
such Interest Period into another calendar month, in
which event such Interest Period shall end on the
immediately preceding LIBOR Business Day;
(ii) if any Interest Period with respect to
a Base Margin Loan would end on a day that is not a
Business Day, that Interest Period shall end on the
next succeeding Business Day;
(iii) if the Lead Borrower shall fail to
give notice as provided in Section 3- 9, herein, the
Lead Borrower shall be deemed to have requested a
conversion of the affected LIBOR Loan to a Base
Margin Loan on the last day of the then current
Interest Period with respect thereto;
(iv) any Interest Period relating to any
LIBOR Loan that begins on the last LIBOR Business Day
of a calendar month (or on a day for which there is
no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end
on the last LIBOR Business Day of a calendar month;
and
(v) any Interest Period relating to any
LIBOR Loan that would otherwise extend beyond the
Maturity Date shall end on such Maturity Date.
-14-
<PAGE>
(vi) there shall be no more than three (3)
Interest Periods outstanding at any one time for
LIBOR Loans.
"INTEREST PAYMENT DATE": With reference to:
(a) any LIBOR Loan, at the Lender's option, (i) on
the first day of each month or (ii) on the last day of each
Interest Period, provided that interest on LIBOR Loans having
an Interest Period of six months shall be payable on the last
day of the third month of such Interest Period and on the last
day of the Interest Period.
(b) any Base Margin Loan, the first day of each
month and the Termination Date.
"INVENTORY" includes, without limitation, "inventory" as defined in the
UCC and also all: packaging, advertising, and shipping
materials related to any of the foregoing, and all names or
marks affixed or to be affixed thereto for identifying or
selling the same; Goods held for sale or lease or furnished or
to be furnished under a contract or contracts of sale or
service by the Borrowers, or used or consumed or to be used or
consumed in any Borrower's business; Goods of said description
in transit: returned, repossessed and rejected Goods of said
description; and all documents (whether or not negotiable)
which represent any of the foregoing.
"INVESTMENT PROPERTY": Has the meaning given that term in the UCC.
"L/C": any letter of credit, the issuance of which is procured by the
Lender for the account of any Borrower and any acceptance made
on account of such letter of credit.
"L/C AGREEMENT": is defined in Section 3-14.
"LEASE": any lease or other agreement, no matter how styled or
structured, pursuant to which any Borrower is entitled to the
use or occupancy of any space.
-15-
<PAGE>
"LENDER": is defined in Preamble.
"LENDER'S RIGHTS AND REMEDIES": is defined in Section 12-6.
"LIABILITIES" includes, without limitation, all and each of the
following, whether now existing or hereafter arising:
(a) Any and all direct and indirect liabilities,
debts, and obligations of the Borrowers to the Lender, each of
every kind, nature, and description.
(b) Each obligation to repay any loan, advance,
indebtedness, note, obligation, overdraft, or amount now or
hereafter owing by the Borrowers to the Lender (including all
future advances whether or not made pursuant to a commitment
by the Lender), whether or not any of such are liquidated,
unliquidated, primary, secondary, secured, unsecured, direct,
indirect, absolute, contingent, or of any other type, nature,
or description, or by reason of any cause of action which the
Lender may hold against the Borrowers.
(c) All notes and other obligations of the Borrowers
now or hereafter assigned to or held by the Lender, each of
every kind, nature, and description.
(d) All interest, fees, and charges and other
amounts which may be charged by the Lender to the Borrowers
and/or which may be due from the Borrowers to the Lender from
time to time.
(e) All costs and expenses incurred or paid by the
Lender in respect of any agreement between the Borrowers and
the Lender or instrument furnished by the Borrowers to the
Lender (including, without limitation, Costs of Collection,
reasonable attorneys' fees, and all court and litigation costs
and expenses).
(f) Any and all covenants of the Borrowers to or
with the Lender and any and all obligations of the Borrowers
to act or to refrain from acting in accordance with any
agreement between the Borrowers and the Lender or instrument
furnished by the Borrowers to the Lender.
-16-
<PAGE>
"LIBOR BUSINESS DAY": Any day on which commercial banks are open for
international business (including dealings in dollar deposits)
in London for such other LIBOR interbank market as may be
selected by the Lender in its sole discretion acting in good
faith.
"LIBOR LOAN": any Revolving Credit Loan bearing interest at the LIBOR
Rate.
"LIBOR RATE": that per annum rate which is the aggregate of the LIBOR
Offer Rate, plus the Applicable Margin.
"LIBOR OFFER RATE": that rate of interest (rounded upwards, if
necessary, to the next 1/100 of 1%) determined by the Lender
to be (i) the prevailing rate per annum at which deposits on
U.S. Dollars are offered to the Lender by first-class banks in
the London interbank market in which the Lender regularly
participates at or about 10:00 A.M. (Boston time) Two (2)
LIBOR Business Days before the first day of the Interest
Period, for a deposit approximately in the amount of the
subject LIBOR Loan for a period of time approximately equal to
such Interest Period, divided by (ii) one minus the Reserve
Percentage.
"LINE (UNUSED) FEE": is defined in Section 3-13(b).
"LOAN ACCOUNT": is defined in Section 3.
"LOAN DOCUMENTS": this Agreement, each instrument and document
executed and/or delivered as contemplated by Article 5, below,
and each other instrument or document from time to time
executed and/or delivered in connection with the arrangements
contemplated hereby, as each may be amended from time to time.
"MATURITY DATE": May 31, 2001.
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"PERSON": any natural person, and any corporation, trust, partnership,
limited liability company, joint venture, or other enterprise
or entity.
"PROCEEDS": include, without limitation, "Proceeds" as defined in the
UCC (defined below), and each type of property described in
Section 4-1, hereof.
"RECEIPTS": all cash, cash equivalents, checks, and credit card slips
and receipts as arise out of the sale of the Collateral.
"RECEIVABLES COLLATERAL": refers to that portion of the Collateral
which consists of the Borrowers' Accounts, General
Intangibles, Chattel Paper, Instruments, Documents of Title,
Documents, Investment Property, letters of credit for the
benefit of the Borrower, and bankers' acceptances held by the
Borrower, and any rights to payment.
"RELATED ENTITY": refers to (a) any Affiliate; and (b) any corporation,
limited liability company, trust, partnership, joint venture,
or other enterprise which: is a parent, brother-sister,
subsidiary, or affiliate, of any Borrower; could have such
enterprise's tax returns or financial statements consolidated
with any Borrower; could be a member of the same controlled
group of corporations (within the meaning of Section
1563(a)(1), (2) and (3) of the Internal Revenue Code of 1986,
as amended from time to time) of which any Borrower is a
member; Controls or is Controlled by the Borrower or any
Affiliate of the Borrower.
"RENEWAL/CONVERSION NOTICE": is defined in Section 3-10.
"REQUIREMENT OF LAW": as to any Person: (a)(i) all statutes, rules,
regulations, orders, or other requirements having the force of
law and (ii) all court orders and injunctions, arbitrator's
decisions, and/or similar rulings, in each instance ((i) and
(ii)) of or by
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any federal, state, municipal, and other governmental
authority, or court, tribunal, panel, or other body which has
jurisdiction over such Person, or any property of such Person,
or of any other Person for whose conduct such Person would be
responsible; (b) that Person's charter, certificate of
incorporation, articles of organization, and/or other
organizational documents, as applicable; and (c) that Person's
by-laws and/or other instruments which deal with corporate or
similar governance, as applicable.
"RESERVES": such reserves as the Lender may establish from time to time
in its reasonable discretion to reflect impediments to the
Lender's ability to realize on the Collateral.
"RESERVE PERCENTAGE": the decimal equivalent of that rate applicable to
the Lender under regulations issued from time to time by the
Board of Governors of the Federal Reserve System for
determining the maximum reserve requirement of the Lender with
respect to "Eurocurrency liabilities" as defined in such
regulations. The Reserve Percentage applicable to a particular
LIBOR Loan shall be based upon that in effect during the
subject Interest Period, with changes in the Reserve
Percentage which take effect during such Interest Period to
take effect (and to consequently change any interest rate
determined with reference to the Reserve Percentage) if and
when such change is applicable to such loans.
"REVOLVING CREDIT": is defined in Section 3-1.
"REVOLVING CREDIT NOTE": is defined in Section 3-6.
"STATED AMOUNT": the maximum amount for which an L/C may be honored.
"SUBORDINATED INDEBTEDNESS": Indebtedness, the payment of principal and
interest on which is expressly subordinated in right of
payment, in form and on terms approved by the Lender in
writing, to the prior payment in full of the Liabilities.
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"SUSPENSION EVENT": Any occurrence, circumstance, or state of facts
which (a) is an Event of Default; or (b) would become an Event
of Default if any requisite notice were given and/or any
requisite period of time were to run and such occurrence,
circumstance, or state of facts were not absolutely cured
within any applicable grace period.
"TERMINATION DATE": The earliest of (a) the Maturity Date, or (b) the
occurrence of an Event of Default under Section 11-7 hereof,
or (c) the date set by the Lender by notice to the Lead
Borrower, which notice sets the Termination Date on account of
the occurrence of an Event of Default other than as described
in Section 11-7.
"TOTAL DEBT SERVICE" shall mean the sum of (i) principal payments made
on long term indebtedness plus (ii) capital lease payments,
plus (iii) consolidated interest expense all as determined in
accordance with generally accepted accounting principles.
"UCC": the Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106).
"YEAR 2000 COMPLIANT": Computer applications, imbedded microchips, and
other systems and subsystems which properly recognize and
perform their intended function without any adverse effect on
account of their respective inability to recognize certain
dates prior to, on, and after December 31, 1999 or on account
of their treating any date prior to, on, or after December 31,
1999 other than as the specific date in question.
ARTICLE 2 - AGENTED BORROWINGS
- ------------------------------
2-1. Designation of Agent Borrower. Each Borrower hereby designates the
Lead Borrower as the agent of that Borrower to discharge the duties and
responsibilities of the Lead Borrower as provided herein.
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2-2. Operation of Loan Arrangement. Except as otherwise provided in this
Article, loans and advances under the Revolving Credit shall be requested solely
by the Lead Borrower as agent for each Borrower.
(b) Confirmatory assignments of accounts and accounts receivable
and remittances on accounts and accounts receivable of the respective Borrowers
shall be provided to the Lender or otherwise directed in accordance with the
Lender's instructions given from time to time to the Lead Borrower.
(c) Any advance which may be made by the Lender under the
Revolving Credit and which is directed to the Lead Borrower is received by the
Lead Borrower in trust for that or those of the Borrowers who are intended to
receive such advance, shall be held by the Lead Borrower in an account separate
from all other funds of the Lead Borrower, and shall not be commingled with any
other funds of the Lead Borrower. The Lead Borrower shall distribute the
proceeds of any such advances solely to the Borrowers. Each Borrower shall be
directly indebted to the Lender for each advance distributed to that Borrower by
the Lead Borrower, together with all accrued interest thereon, as if that amount
had been advanced directly by the Lender to that Borrower (whether or not the
subject advance was based upon the accounts and/or inventory or other assets of
the Borrower which actually received such distribution), in addition to which
each Borrower shall be obligated to the Lender in that amount on account of that
Borrower's respectively having guarantied the Liabilities.
(d) The Lender shall have no responsibility to inquire as to the
distribution of loans and advances made by the Lender through the Lead Borrower
as described herein.
2-3. Loans Directly to Borrower. If, for any reason, and at any time
during the term of this Agreement,
(i) any Borrower, including the Lead Borrower, as
agent for the Borrowers, shall be unable to, or prohibited from
carrying out the terms and conditions of this Agreement (as determined
by the Lender in the Lender's sole and absolute discretion); or
(ii) the Lender deems it inexpedient (in the
Lender's sole and absolute discretion) to continue making loans and
advances to or for the account of any particular Borrower, or to
channel such loans and advances through the Lead Borrower,
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then the Lender may make loans and advances directly to such of the Borrowers as
the Lender determines to be expedient, which loans or advances may be made
without regard to the procedures otherwise included in this Article 2.
(b) In the event that the Lender determines to forgo the
procedures included herein pursuant to which loans and advances are to be
channeled through the Lead Borrower, then the Lender may designate one or more
of the Borrowers to fulfill the financial and other reporting requirements
otherwise imposed herein upon the Lead Borrower.
(c) Each of the Borrowers shall remain liable to the
Lender for the payment and performance of all Liabilities (which payment and
performance shall continue to be secured by all collateral security granted by
each of the Borrowers) notwithstanding any determination by the Lender to cease
making loans or advances to or for the benefit of any Borrower.
2-4. Continuation of Authority of Lead Borrower. The authority of the Lead
Borrower to request loans on behalf of, and to bind, the Borrowers, shall
continue unless and until the Lender acts as provided in Section 2-4, above, or
the Lender actually receives
(a) written notice of: (i) the termination of such
authority, and (ii) the subsequent appointment of a successor Lead Borrower,
which notice is signed by the respective Presidents of each Borrower (other than
the President of the Lead Borrower being replaced) then eligible for borrowing
under the within Agreement; and
(b) written notice from such successive Lead Borrower
(i) accepting such appointment; (ii) acknowledging that such removal and
appointment has been effected by the respective Presidents of such Borrowers
eligible for borrowing under the within Agreement; and (iii) acknowledging that
from and after the date of such appointment, the newly appointed Lead Borrower
shall be bound by the terms hereof, and that as used herein, the term "Lead
Borrower" shall mean and include the newly appointed Lead Borrower.
ARTICLE 3 - THE REVOLVING CREDIT
- --------------------------------
3-1. Establishment of Revolving Credit. The Lender hereby establishes a
revolving line of credit (hereinafter, the "REVOLVING CREDIT") in the Borrowers'
favor pursuant to which the Lender, subject to, and in accordance with, this
Agreement, shall make loans and advances and otherwise provide financial
accommodations to and for the account of the Borrowers. The
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amount available for borrowing under the Revolving Credit shall be determined by
the Lender by reference to Availability (as defined below), as determined by the
Lender from time to time hereafter.
(b) As used herein, the term "AVAILABILITY" refers at any time to the
lesser of (i) or (ii), below:
(i) up to:
(A) the Commitment
Minus
-----
(B) The then unpaid principal balance of the
Loan Account.
Minus
-----
(C) The aggregate amounts then undrawn on all
outstanding L/C's, acceptances or any other
accommodations issued or incurred, or
caused to be issued or incurred, by the
Lender for the account and/or the benefit
of any of the Borrowers.
(ii) up to:
(A) Eighty-five percent (85%) of the face
amount of each of the Borrowers' Acceptable
Accounts, less the Dilution Reserve.
Plus
----
(B) the lesser of (1) (x) From November 29,
1999 through February 29, 2000, Sixty-Five
percent (65%) of the cost of the Borrowers'
Acceptable Inventory, and (y) From and
after February 29, 2000, Sixty percent
(60%) of the cost of the Borrowers'
Acceptable Inventory, or (2) $6,000,000.00.
Plus
----
(C) the lesser of (1) 80% of the forced
liquidation value of the Borrowers'
Equipment, as determined by the Lender, or
(2) the Equipment Cap.
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Minus
-----
(D) The then aggregate of such Reserves (other
than the Dilution Reserve) as may be
established by the Lender from time to time
Minus
-----
(E) The then unpaid principal balance of the
Loan Account.
Minus
-----
(F) The aggregate amounts then undrawn on all
outstanding L/C's, acceptances, or any
other accommodations issued or incurred, or
caused to be issued or incurred, by the
Lender for the account and/or the benefit
of the Borrowers.
(c) Availability shall be based upon Borrowing
Certificates furnished as provided in Section 10-4, below.
(d) The proceeds of borrowings under the Revolving
Credit shall be utilized solely to refinance indebtedness to Huntington National
Bank, Fleet National Bank, Porter Capital, K&L Financial, Triple L Ltd., and
Gibralter, to pay transaction costs, for working capital purposes, and for
general corporate purposes.
3-2. Reductions of Commitment. The Commitment may be voluntarily
reduced, at the Borrowers' option, in minimum increments of $1,000,000.00, with
any monthly payment of interest, subject to the payment of the Line (Unused) Fee
and Early Termination Fee described below. The Commitment shall automatically be
reduced from proceeds of certain transactions, as provided in Section 3-8 below.
3-3. Advances. The making of loans, advances, and credits by the
Lender in excess of Availability is for the benefit of the Borrowers and does
not affect the obligations of the Borrowers hereunder; such loans constitute
Liabilities. The making of any such loans, advances, and credits in excess of
Availability on any one occasion shall not obligate the Lender to make any such
loans, credits, or advances on any other occasion nor to permit such loans,
credits, or advances to remain outstanding.
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<PAGE>
3-4. Risks of Value of Accounts and Inventory . The Lender's
reference to a given asset for monitoring concerning the Lender's making of
loans, credits, and advances and the providing of financial accommodations under
the Revolving Credit shall not be deemed a determination by the Lender relative
to the actual value of the asset in question. All risks of the creditworthiness
of all Accounts are and remain upon the Borrowers. Reference by the Lender to a
particular Account owed by a particular Account Debtor for guidance and/or
monitoring shall not obligate the Lender to rely upon any other Account owed by
the same Account Debtor to be acceptable for lending or to continue to rely upon
that account. All risks of the saleability of the Borrower's Inventory are and
remain upon the Borrowers. All Collateral (defined below) secures the prompt,
punctual, and faithful performance of the Liabilities whether or not relied upon
by the Lender in connection with the making of loans, credits, and advances and
the providing of financial accommodations under the Revolving Credit.
3-5. Procedures Under Revolving Credit. The Lead Borrower may
request loans and advances under the Revolving Credit from time to time under,
in each instance in accordance with such procedures as may from time to time be
acceptable to the Lender.
(b) Subject to the provisions of this Agreement, a loan
or advance under the Revolving Credit duly and timely requested by the Lead
Borrower shall be made pursuant hereto, PROVIDED THAT:
(i) The Availability will not be exceeded; and
(ii) The Revolving Credit has not been suspended as
provided in Section 3-5(h).
(c) (i) There shall not be any recourse to, nor liability
of, the Lender on account of any of the following:
(A) Any delay in the Lender's making of, and/or
any decline by the Lender to make, any loan or advance requested under
the Revolving Credit, except due to the Lender's gross negligence or
willful misconduct.
(B) Any delay in the proceeds of any such loan
or advance constituting collected funds.
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<PAGE>
(C) Any delay in the receipt, and/or any loss,
of funds which constitute a loan or advance under the Revolving Credit,
the wire transfer of which was properly initiated by the Lender in
accordance with wire instructions provided to the Lender by the Lead
Borrower.
(ii) The Lender may rely on any request for a loan or
advance or financial accommodation which the Lender, in good faith, believes to
have been made by a person duly authorized to act on behalf of the Lead Borrower
and may decline to make any such requested loan or advance or to provide any
such financial accommodation pending the Lender's being furnished with such
documentation concerning that person's authority to act as may be satisfactory
to the Lender.
(d) A request by the Lead Borrower for any financial
accommodation under the Revolving Credit or of the issuance of an L/C or any
other accommodations shall be irrevocable and shall constitute certification by
the Lead Borrower and each Borrower that as of the date of such request, each of
the following is true and correct:
(i) There has been no material adverse change
in the Borrowers' financial condition from the most recent financial
information furnished the Lender pursuant to this Agreement.
(ii) The Borrowers are in compliance with, and
has not breached any of, its covenants contained in this Agreement.
(iii) Each representation which is made herein or
in any of the Loan Documents (defined below) is then true and complete
as of and as if made on the date of such request.
(iv) No Suspension Event is then extant.
(e) The Borrowers shall immediately become indebted to
the Lender for the amount of each loan under or pursuant to this Agreement when
such loan is deemed to have been made.
(f)(i) The Lead Borrower may request that the Lender issue
L/C's for the account of any Borrower. Each such request shall be in such manner
as may from time to time be acceptable to the Lender, and which may include,
without limitation, (A) telephone notice to such person as may be designated by
the Lender or (B) written notice.
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<PAGE>
(ii) The Lender, in the Lender's discretion in each
instance, may issue any L/C so requested by the Borrower, provided that the
aggregate Stated Amount, following the requested issuance thereof, would not
exceed the lesser of Availability or One Million and no/100 Dollars
($1,000,000.00) and provided that the L/C (if so issued) is in form satisfactory
to the Lender.
(iii) The Borrowers and/or the Lead Borrower shall
execute such documentation to apply for and support the issuance of an L/C as
may be required by the Lender.
(g) The Lender, without the request of the Lead
Borrower, may advance under the Revolving Credit any amount which any Borrower
is obligated to pay to the Lender or for which any Borrower or the Lender
becomes obligated on account of, or in respect to, any L/C. Such advance shall
be made even if such advance would result in Availability's being exceeded. Such
action on the part of the Lender shall not constitute a waiver of the Lender's
rights under Section 3-7(b), below.
(h) Upon the occurrence from time to time of any
Suspension Event:
(i) The Lender may suspend the Revolving Credit
immediately.
(ii) The Lender shall not be obligated, during such
suspension, to make any loans or advance, or to provide any financial
accommodation hereunder or to seek the issuance of any L/C.
(iii) The Lender may suspend the right of the Lead
Borrower to request any LIBOR Loan or to convert any Base Margin Loan
to a LIBOR Loan.
3-6. The Loan Account. An account (hereinafter, the "LOAN ACCOUNT") shall
be opened on the books of the Lender, in which Loan Account a record may be kept
of all loans made by the Lender to the Borrowers under or pursuant to the
Revolving Credit and of all payments thereon.
(b) The Lender may also keep a record (either in the Loan Account
or elsewhere, as the Lender may from time to time elect) of all interest, fees,
service charges, costs, expenses, and other debits owed the Lender on account
of the Liabilities under the Revolving Credit and of all credits against such
amounts so owed.
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<PAGE>
(c) All credits against the Liabilities shall be conditional upon
final payment to the Lender of the items giving rise to such credits. The amount
of any item credited against the Liabilities which is charged back against the
Lender for any reason or is not so paid shall be a Liability and shall be added
to the Loan Account, whether or not the item so charged back or not so paid is
returned.
(d) Except as otherwise provided herein, all fees, service
charges, costs, and expenses for which the Borrowers are obligated hereunder are
payable on demand. In the determination of Availability, the Lender may deem
fees, service charges, accrued interest, and other payments as having been
advanced under the Revolving Credit whether or not such amounts are then due and
payable.
(e) The Lender, without the request of the Lead Borrower, may
advance under the Revolving Credit any interest, fee, service charge, or other
payment to which the Lender is entitled from any Borrower pursuant hereto and
may charge the same to the Loan Account notwithstanding that such amount so
advanced may result in Availability's being exceeded. Such action on the part of
the Lender shall not constitute a waiver of the Lender's rights under Section
3-8(b), below. Any amount which is added to the principal balance of the Loan
Account as provided in this Subsection shall bear interest at the interest rate
applicable from time to time to the unpaid principal balance of the Loan
Account.
(f) Any statement rendered by the Lender to the Lead Borrower
concerning the Liabilities shall be considered correct and accepted by the
Borrowers and shall be conclusively binding upon the Borrowers unless the Lead
Borrower provides the Lender with written objection thereto within thirty (30)
days from the mailing of such statement, which written objection shall indicate,
with particularity, the reason for such objection. The Loan Account and the
Lender's books and records concerning the loan arrangement contemplated herein
and the Liabilities shall be prima facie evidence and proof of the items
described therein.
3-7. The Revolving Credit Note. The obligation to repay loans and advances
under the Revolving Credit, with interest as provided herein, shall be evidenced
by a note (hereinafter, the "REVOLVING CREDIT NOTE") in the form
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of EXHIBIT 3-7, annexed hereto, executed by each Borrower. Neither the original
nor a copy of the Revolving Credit Note shall be required, however, to establish
or prove any Liability. In the event that the Revolving Credit Note is ever
lost, mutilated, or destroyed, upon receipt of a lost note affidavit and
indemnity from the Lender, the Borrowers shall execute a replacement thereof and
deliver such replacement to the Lender.
3-8. Payment of Loan Account. (a) The Borrowers shall repay all or any
portion of the principal balance of the Loan Account from time to time with the
proceeds from the Collateral (as to which, see Section 9-3 below) until the
termination of the Revolving Credit (as to which, see Article 15, below).
(b) The Borrowers, without notice or demand from the Lender, shall
pay the Lender that amount, from time to time, which is necessary so that the
principal balance of the Loan Account does not exceed Availability.
(c) The Borrowers shall pay the Lender the net proceeds of (a)
sale of assets not in the ordinary course of business, (b) equity offerings, (c)
debt issuances, and (d) casualty and condemnation proceeds (except to the extent
utilized to replace or repair the property subject to the casualty). Such net
proceeds will be applied first to the principal of the Revolving Facility (with
a corresponding permanent reduction in the Commitment in each case other than
with respect to the net proceeds from an equity offering which shall be paid to
the Lender but which shall not be required to reduce the Commitment).
(d) The Borrowers shall repay the then entire unpaid balance of
the Loan Account upon the Termination Date.
3-9. Interest. (a) Revolving Credit Loans shall initially bear interest at
the Base Rate plus the Applicable Margin and thereafter shall bear interest at
the Base Rate plus the Applicable Margin or the LIBOR Rate plus the Applicable
Margin, as specified from time to time by the Lead Borrower in the
Renewal/Conversion Notice with respect to the subject Revolving Credit Loan or
as otherwise provided in this Agreement.
(b) The Borrowers shall pay interest on each Revolving Credit Loan
in arrears on the applicable Interest Payment Date for that Loan.
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(c) Following the occurrence of any Event of Default(and whether
or not the Lender exercises the Lender's rights on account thereof), all loans
and advances made under the Revolving Credit shall bear interest at the
aggregate of the Base Rate plus four percent (4%) per annum.
3-10. Duration of Interest Periods. (a) Subject to the limitation described
herein, the Lead Borrower shall have the option to elect an Interest Period to
be applicable to a Revolving Credit Loan by giving notice of such election (a
"RENEWAL / CONVERSION NOTICE") in the form of EXHIBIT 3-10, annexed hereto
received no later than 10:00 Boston time One Business Day before the end of the
then applicable Interest Period if such Loan is to be converted to a Base Margin
Loan and Three Business Days before (and not counting) the end of the then
applicable Interest Period if such Loan is to be continued as, or converted to,
a LIBOR Loan; provided, however, that (a) any Conversion of LIBOR Loans may be
made only on the last day of the respective Interest Period for such Loans, and
(b) no loan may be Converted to a LIBOR Loan when any Default or Event of
Default has occurred and is continuing. Each such Conversion Request shall be by
telephone, telecopy, telex or cable, in each case confirmed immediately in
writing in the manner specified for notices herein, and shall, within the
restrictions specified above, specify (i) the date of such Conversion, (ii) the
Loans to be Converted, and (iii) if such Conversion is to LIBOR Loan the
duration of the initial Interest Period for such Loans. Each Conversion Request
with respect to LIBOR Loans shall be irrevocable and binding on the Borrower.
(b) If the Lender does not receive a notice of election of, or
conversion to, an Interest Period for a LIBOR Loan pursuant to subsection (a)
within the applicable time limits specified therein, the Borrower shall be
deemed to have elected to convert such Loan in whole into a Base Margin Loan on
the last day of the then current Interest Period with respect thereto.
(c) The Lead Borrower shall not select, renew, or convert any
Revolving Credit Loan such that there are more than three (3) interest rates
applicable to the Revolving Credit Loans which are LIBOR Loans at any one time.
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(d) LIBOR Loans shall each be in an amount of not less than Five
Hundred Thousand and no/100 Dollars ($500,000.00) and Five Hundred Thousand and
no/100 Dollars ($500,000.00) increments in excess of such minimum.
(e) If after giving a Conversion Request, the Borrower fails
to borrow or Convert any LIBOR Loan, the Borrower shall indemnify the Lender
against any loss or expense incurred by the Lender as a result of such failure
including, without limitation, any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by the Lender to
fund or maintain a LIBOR Loan to be made by the Lender and the compensation as
provided for in Section 3-18, herein.
3-11. Changed Circumstances. In the event that:
(a) on any day on which the rate for a LIBOR Loan would other wise
be set, the Lender shall have determined in good faith (which
determination shall be final and conclusive) that adequate and fair
means do not exist for ascertaining such rate; or
(b) at any time the Lender shall have determined in good faith
(which determination shall be final and conclusive) that:
(i) the continuation of or conversion of any Revolving
Credit Loan to a LIBOR Loan has been made impracticable or
unlawful by (A) the occurrence of a contingency that
materially and adversely affects the applicable market or (B)
compliance by the Lender in good faith with any applicable law
or governmental regulation, guideline or order or
interpretation or change thereof by any governmental authority
charged with the interpretation or administration thereof or
with any request or directive of any such governmental
authority (whether or not having the force of law); or
(ii) the indices on which the interest rates for LIBOR
Loan shall no longer represent the effective cost to the
Lender for U.S. dollar deposits in the interbank market for
deposits in which it regularly participates;
then, and in any such event, the Lender shall forthwith so notify the
Lead Borrower thereof. Until the Lender notifies the Lead Borrower that
the circumstances giving rise to such notice no longer apply, the obli-
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gation of the Lender to make LIBOR Loans of the type affected by such
changed circumstances or to permit the Lead Borrower to select the
affected interest rate as otherwise applicable to any Revolving Credit
Loans shall be suspended. If at the time the Lender so notifies the
Lead Borrower, the Lead Borrower has previously given the Lender a
Renewal/Conversion Notice with respect to one or more LIBOR Loans, but
such Revolving Credit Loans have not yet gone into effect, such notifi
cation shall be deemed to be void and the Lead Borrower may borrow
Revolving Credit Loans which are Base Margin Loans by giving a sub
stitute Renewal/Conversion Notice. Upon the expiration of the Interest
Period for any LIBOR Loan which is outstanding on the date of such
notification, the amount of such LIBOR Loan shall thereafter constitute
a Base Margin Loan.
3-12. Payments and Prepayments. (a) Base Margin Loans may be prepaid at any
time and from time to time without premium or penalty.
(b) Any LIBOR Loan may be prepaid, upon not less than three
(3) Business Days' prior written notice to the Lender, without penalty, provided
that (1) each partial prepayment shall be in the principal amount of $500,000.00
or an integral multiple thereof, (2) if such prepayment is on any day other than
the last day of the Interest Period relating thereto, such amount prepaid shall
be accompanied by any additional amounts necessary to compensate the Lender for
any costs incurred by the Lender in accordance with Section 3-18, herein,
including any interest or fees payable by the Lender to lenders of funds
obtained by it in order to make or maintain its LIBOR Loans hereunder and (3)
any amount prepaid shall be accompanied by accrued interest on the principal
repaid to the date of payment.
(c) In the event that, at the time of any such prepayment,
Loans are outstanding of more than one type, the amount prepaid shall be applied
first to any Base Margin Loan prior to application to any LIBOR Loans.
(d) Any premium due hereunder upon such prepayment shall be
due and payable upon any prepayment whatsoever, whether voluntary or
involuntary, to the extent permitted by law, and after acceleration of the
unpaid principal balance of the Liabilities after the occurrence of an Event of
Default.
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3-13. Fees. (a) As compensation for the Lender's commitment included herein
to make loans and advances to the Borrowers and as compensation for the Lender's
maintenance of sufficient funds available for such purpose, the Lender shall
have earned a FACILITY FEE (so referred to herein) of $125,000.00 ($85,000.00 of
which has been previously paid), which fee shall be paid with the proceeds of
the first advance made under the Revolving Credit.
(b) In addition to any other fee by the Borrowers on account of
the Revolving Credit, the Borrowers shall pay the Lender a LINE (UNUSED) FEE (so
referred to herein) in arrears, on the first day of each month (and on the
Termination Date). The Line (Unused) Fee shall be equal to 0.375% per annum
of the average difference, during the month just ended (or relevant period with
respect to the payment being made on the Termination Date) between the
Commitment and the unpaid principal balance of the Loan Account.
(c) The Borrower shall pay the Lender a COLLATERAL MANAGEMENT FEE
(so referred to herein) of $4,800.00 per annum, payable in equal quarterly
installments in advance.
(d) The Borrower shall not be entitled to any credit, rebate
or repayment of any Facility Fee, Collateral Management Fee, or Line (Unused)
Fee previously earned by the Lender pursuant to this Section notwithstanding any
termination of the within Agreement or suspension or termination of the Lender's
obligation to make loans and advances hereunder.
(e) The Borrower shall pay an EARLY TERMINATION FEE (so referred
to herein as follows:
(i) Subject to subsection (iii) below, the sum
of $280,000.00, if the Commitment is
terminated within twelve (12) months of the
closing date.
(ii) Subject to subsection (iii) below, the sum
of $140,000.00, if the Commitment is
terminated after twelve (12) months from
the closing date and prior to twenty-four
(24) months after the closing date.
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(iii) No Early Termination Fee shall be due if
the Commitment is terminated and the
Liabilities are repaid with the proceeds of
an equity offering.
3-14. Fees For L/C's. (a) Prior to the issuance of any L/C, the Borrowers
shall pay to the Lender a fee on account of such L/C based upon the Lender's
then current fee schedule for like L/C's.
(b) In addition to the fee to be paid as provided in
Subsection (a), above, the Borrowers shall pay to the Lender, on demand, all
issuance, processing, negotiation, amendment, and administrative fees and other
amounts on account of, or in respect to, each L/C.
3-15. Establishment of Letter of Credit. (a) Upon the written, telephonic,
or electronic request of the Lead Borrower, the Lender agrees to cause the
issuance of L/C's on behalf of a Borrower as provided herein. The Lead Borrower
may request issuance of L/C's in such manner as may from time to time be
reasonably acceptable to the Lender. The Borrowers shall execute and deliver
to the Lender such further documents and instruments in connection with any L/C,
as the Lender, in accordance with the Lender's then customary practices with
respect to similar facilities, may reasonably request including, without
limitation, the Lender's standard letter of credit agreements (hereinafter, the
"L/C Agreement"). In the event of any inconsistency between the terms of the L/C
Agreement and this Agreement the terms and conditions of the L/C Agreement shall
control.
(b)(i) The maximum aggregate amount of L/C's Outstanding
at any one time shall not exceed the lesser of: (i)One Million and no/100
Dollars ($1,000,000.00) or (ii) the difference between Availability and the then
unpaid principal balance of all Revolving Credit Loans.
(c) No L/C shall have a maturity date which is later
than the earlier of (i) or (ii) below:
(i) Three hundred sixty-five (365) days after the date
of such L/C's issuance;
(ii) the Termination Date.
(d) Upon the making of any request by or on behalf of
the Lead Borrower for issuance of a L/C, the Borrowers shall be deemed to have
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certified that as of the date of such request, the representations set forth in
Subsections 3-4(c)(i) - (iii), above, are true and correct and that the
Availability which supports the issuance of the subject L/C arises out of
transactions involving the import shipment of goods.
3-16. Effect of Honor of L/C's. The Borrowers shall reimburse the Lender
for the amount of any honoring of any L/C. Any such honoring which is not so
reimbursed on the Business Day when so honored shall constitute a Revolving
Credit Loan.
3-17. Additional Provisions Relating to L/C's. (a) The obligations of the
Borrowers with respect to L/Cs shall be absolute and unconditional. The
obligations of the Borrowers with respect to L/Cs shall rank pari passu with the
obligations of the Borrowers to repay all other Liabilities. The Lender's
rights, powers, privileges and immunities specified in or arising under this
Agreement are in addition to any heretofore or at any time hereafter otherwise
created or arising, whether by statute or rule of law or contract.
(b) The Borrowers will
(i) promptly examine the copy of any L/C (and
any amendments thereof) sent to it by the Lender;
(ii) promptly examine all instruments and
documents delivered to it from time to time by the Lender; and
(iii) within two (2) Business Days of receipt
thereof, provide the Lender with written notice of any irregularity or
claim of non-compliance with the instructions of such person or entity.
The Borrowers are conclusively deemed to have waived any such claim against the
Lender and its correspondents unless such notice is so timely given.
(c) The Borrowers will
(i) procure promptly any necessary
documentation, permits, or licenses for the import, export or shipping
of the property in connection with which any L/C is issued;
(ii) comply with all foreign and domestic
governmental requirements relating to the shipment or financing of such
property; and
(iii) furnish such evidence that the above
requirements have been fulfilled as the Lender reasonably may require.
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(d) The Borrowers will jointly and severally indemnify
the Lender for and hold harmless against any and all claims, loss, liability, or
damage, including attorneys' reasonable fees, howsoever arising from or in
connection with the surrender or endorsement of any bill of lading, warehouse
receipt or documents of title at any time held by the Lender, or any of its
correspondents in connection with any L/C.
(e) As further security for the payment or performance
of any and all other obligations and liabilities hereunder, certain or
contingent, and also for the payment or performance of any and all other
obligations and liabilities, certain or contingent, due or to become due, now
existing or hereafter arising, which are now, or may at any time or times
hereafter be owing by the Borrowers to the Lender, the Borrowers hereby
(i) recognize and admit the Lender's security
interest in, and, after the occurrence of an Event of Default,
unqualified right to the possession and disposal of, any and all
shipping documents, warehouse receipts, policies or certificates of
insurance, and other documents accompanying or relative to any L/C or
Acceptance (whether or not such documents, goods, or other property
have been released to or upon the order of the Lead Borrower under a
security agreement or trust or bailee receipt) and in and to the
proceeds of each and all of the foregoing; and
(ii) if any third party shall have joined in the
applica tion for the L/C, assign and transfer to the Lender all right,
title and interest of the Borrowers in and to all property and
interests which any Borrower may now or hereafter obtain from such
third party arising in connection with the transaction to which the L/C
relates, to the extent that same can be lawfully assigned.
(f) Following the occurrence of any Event of Default, the Lender,
with power of substitution and revocation, may:
(i) sign, in the name of the Lender, and/or the name of
any Borrower, any document called for from any Borrower and/or endorse,
in the name of any Borrower, any and all notes, checks, drafts,
documents of title, Documents of Title, or other instruments or
documents in which the Lender has or the Lender may at any time have
any interest in connection with any L/C; and
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(ii) perform any obligation or agreement in connection
with any L/C or Acceptance which the Lender deems necessary or
desirable to protect the Lender's right, powers and remedies under this
Agreement.
(g) None of the Lender, the Lender's correspondents or any
advising, negotiating, or paying bank with respect to any L/C, shall be
responsible in any way for:
(i) performance by any beneficiary under any L/C of
that beneficiary's or payee's obligations to any Borrower; or
(ii) the form, sufficiency, correctness, genuineness,
authority of any person signing; falsification; or the legal effect of;
any documents called for under any L/C if (with respect to the
foregoing) such documents on their face appear to be in order.
(h) The Lender may honor, as complying with the terms of
any L/C and of any drawing thereunder, any drafts or other documents otherwise
in order, but signed or issued by an administrator, executor, conservator,
trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, liquidator, receiver, or other legal representative of the party
authorized under such L/C or Acceptance to draw or issue such drafts or other
documents.
(i) Unless otherwise agreed to, in the particular
instance, the Borrowers hereby authorize the Lender to (i) select an advising
bank, if any; (ii) select a paying bank, if any; and (iii) select a negotiating
bank.
(j) All directions, correspondence, and funds transfers
relating to any L/C are at the risk of the Borrowers. The Lender shall have
discharged its obligations under any L/C which, or the drawing under which,
includes payment instructions, by the initiation of the method of payment called
for in, and in accordance with, such instructions (or by any other commercially
reasonable and comparable method). The Lender does not assume any responsi-
bility for any inaccuracy, interruption, error, or delay in transmission or
delivery by post, telegraph or cable, or for any inaccuracy of translation.
(k) The Lender's rights, powers, privileges and immunities
specified in or arising under this Agreement are in addition to any heretofore
or at any time hereafter otherwise created or arising, whether by statute or
rule of law or contract.
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(l) Except to the extent otherwise expressly provided hereunder
or agreed to in writing by the Lender, and the Borrowers, the L/C will be
governed by the Uniform Customs and Practice for Documentary Credits, Inter
national Chamber of Commerce, Publication No. 500, and any subsequent revisions
thereof.
(m) If any change in any law, executive order or regulation, or
any directive of any administrative or governmental authority (whether or not
having the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirements against L/C's heretofore or hereafter
caused to be issued by the Lender or with respect to which the Lender
has an obligation to lend to fund drawings thereunder; or
(ii) impose on any Lender any other condition or re-
quirements relating to any such L/C's;
and the result of any event referred to in clause (i) or (ii), above, shall be
to increase the cost to the Lender of issuing or maintaining any L/C, then, upon
demand by the Lender and delivery by the Lender to the Borrowers of a
certificate of an officer of the Lender describing such change in law, executive
order, regulation, directive, or interpretation thereof, its effect on the
Lender, and the basis for determining such increased costs and their allocation,
the Borrowers within five (5) days after receipt of such notice shall pay to the
Lender, from time to time as specified by the Lender, such amounts as shall be
sufficient to compensate the Lender for such increased cost. The Lender's
determination of costs incurred under clause (i) or (ii) above, shall be
conclusive and binding on the Borrower in the absence of manifest error.
(n) The obligations of the Borrowers under this Agreement
with respect to L/C's are absolute, unconditional, and irrevocable and
shall be performed strictly in accordance with the terms hereof under
all circumstanc es, whatsoever including, without limitation, the
following:
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(i) Any lack of validity or enforceability or
restriction, restraint, or stay in the enforcement of the within
Agreement, any L/C, or any other agreement or instrument relating
thereto.
(ii) Any amendment or waiver of, or consent to the depar-
ture from, all or any of the above.
(iii) The existence of any claim, set-off, defense, or
other right which the Borrower may have at any time against the
beneficiary of the L/C.
3-18. Breakage Costs. Each Borrower jointly and severally agrees to
indemnify the Lender and to hold the Lender harmless from and against any loss,
cost or expense (including loss of anticipated profits) that the Lender may
sustain or incur as a consequence of (a) default by the Borrowers in payment of
the principal amount of or any interest on any LIBOR Loans as and when due and
payable, including any such loss or expense arising from interest or fees
payable by the Lender to lenders of funds obtained by it in order to maintain
its LIBOR Loans, (b) default by the Borrowers in making a borrowing or
conversion after the Lead Borrower has given (or is deemed to have given) a
Conversion Request, or (c) the making of any payment of any LIBOR Loan or the
making of any conversion of any such Loan to a Base Margin Loan on a day that is
not the last day of the applicable Interest Period with respect thereto, whether
due to voluntary prepayment, payment realized from the Collateral or any
Guarantor after the occurrence of an Event of Default, or otherwise, including
interest or fees payable by the Lender to lenders of funds obtained by it in
order to maintain any such Loans. Such loss shall include, without limitation,
an amount calculated as follows:
(a) First, the Lender shall determine the amount by which (i) the
total amount of interest which would have otherwise accrued hereunder on each
installment of principal so paid or not borrowed, during the period beginning on
the date of such payment or failure to borrow and ending on the date such
installment would have been due (the "Reemployment Period"), exceeds (ii) the
total amount of interest which would accrue, during the Reemployment Period, on
any readily marketable bond or other obligation of the United States of America
designated by the Lender in its sole discretion at or about the time
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of such payment, such bond or other obligation of the United States of America
to be in an amount equal (as nearly as may be) to the amount of principal so
paid or not borrowed and to have a maturity comparable to the Reemployment
Period, and the interest to accrue thereon to take account of amortization of
any discount from par or accretion of premium above par at which the same is
selling at the time of designation. Each sum amount is hereafter referred to as
an "Installment Amount".
(b) Second, each Installment Amount shall be treated as payable as
of the date on which the related principal installment would have been payable
by the Borrower had such principal installment not been prepaid or not borrowed.
(c) Third, the amount to be paid on each such date shall be the
present value of the Installment Amount determined by discounting the amount
thereof from the date on which such Installment Amount is to be treated as
payable, at the same annual interest rate as that payable upon the bond or other
obligation of the United States of America designated as aforesaid by the
Lender.
3-19. Computation of Interest and Fees. Interest and all fees payable
hereunder shall be computed daily on the basis of a year of 360 days and paid
for the actual number of days for which due. If the due date for any payment of
principal is extended by operation of law, interest shall be payable for such
extended time. If any payment required by this Agreement becomes due on a day
that is not a Business Day, such payment may be made on the next suc ceeding
Business Day, and such extension shall be included in computing interest in
connection with such payment.
3-20. Overdue Payments. Upon the occurrence of an Event of Default, all
Liabilities shall bear interest from and including the due date thereof until
paid, payable on demand, at a rate per annum equal to the Base Rate plus 4% per
annum.
3-21. Automatic Payment. The Borrowers authorize the Lender to
automatically debit the Borrowers' demand deposit accounts with the Lender on
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the Interest Payment Date or such other dates when due for all interest, fees,
costs, commissions, service charges and expenses due to the Lender.
3-22. Additional Costs, Etc. If any present or future applicable law, which
expression, as used herein, includes statutes, rules and regulations thereunder
and interpretations thereof by any competent court or by any governmental or
other regulatory body or official charged with the administration or the
interpretation thereof and requests, directives, instructions and notices at any
time or from time to time hereafter made upon or otherwise issued to the Lender
by any central bank or other fiscal, monetary or other authority (whether or not
having the force of law), shall:
(a) subject the Lender to any tax, levy, impost, duty, charge, fee,
deduction or withholding of any nature with respect to this Agreement, the other
Loan Documents, or the Loans (other than taxes based upon or measured by the
income or profits of the Lender), or
(b) materially change the basis of taxation (except for changes in
taxes on income or profits) of payments to the Lender of the principal of or the
interest on any Loans or any other amounts payable to the Lender under this
Agreement or the other Loan Documents, or
(c) impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Agreement) any special deposit,
reserve, assessment, liquidity, capital adequacy or other similar requirements
(whether or not having the force of law) against assets held by, or deposits in
or for the account of, or loans by, or commitments of an office of the Lender,
or
(d) impose on the Lender any other conditions or requirements with
respect to this Agreement, the other Loan Documents, the Loan, or any class of
loans or commitments of which any Loan forms a part;
and the result of any of the foregoing is
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(i) to increase the cost to the Lender of making, funding, issuing,
renewing, extending or maintaining any of the Loans, or
(ii) to reduce the amount of principal, interest or other amount
payable to the Lender hereunder on account of any of the Loans, or
(iii) to require the Lender to make any payment or to forego any
interest or other sum payable hereunder, the amount of which payment or
foregone interest or other sum is calculated by reference to the gross
amount of any sum receivable or deemed received by the Lender from the
Borrowers hereunder,
then, and in each such case, the Borrowers will, upon demand made by
the Lender at any time and from time to time and as often as the
occasion therefor may arise, pay to the Lender such additional amounts
as will be sufficient to compensate the Lender for such additional
cost, reduction, payment or foregone interest or other sum.
3-23. Capital Adequacy. If the Lender shall have determined that the
adoption of any applicable law, rule, regulation, guideline, directive or
request (whether or not having force of law) regarding capital requirements, or
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender with any of the foregoing
imposes or increases a requirement by the Lender to allocate capital resources
to the Loans made, or to be made, hereunder, which has or would have the effect
of reducing the return on the Lender's capital to a level below that which the
Lender could have achieved (taking into consideration the Lender's then existing
policies with respect to capital adequacy and assuming full utilization of the
Lender's capital) but for such adoption, change or compliance, by any amount
deemed by the Lender to be material: (i) the Lender shall promptly after its
determination of such occurrence give notice thereof to the Lead Borrower; and
(ii) the Borrowers shall pay to the Lender as an additional fee from
time-to-time on demand such amount as the Lender certifies to be the amount that
will compensate it for such reduction. In determining
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such amounts, the Lender may use any reasonable averaging and attribution
methods.
3-24. Certificate. The Lender shall furnish the Lead Borrower with a
certificate setting forth the calculation of any amounts payable p-pursuant to
ss.ss.3-22 or 3-23 hereof, which certificate shall be prima facie evidence that
such amounts are due and owing. In calculating the amounts due from the
Borrowers under those sections, the Lender shall treat the Borrowers in a
reasonably similar manner to other of the Lender's customers as to whom similar
provisions also apply.
ARTICLE 4 - GRANT OF SECURITY INTEREST
- --------------------------------------
4-1. Grant of Security Interest. To secure the Borrowers' prompt,
punctual, and faithful performance of all and each of the Borrowers'
Liabilities, the Borrowers hereby grant to the Lender a continuing security
interest in and to, and assigns to the Lender, the following, and each item
thereof, whether now owned or now due, or in which any Borrower has an interest,
or hereafter acquired, arising, or to become due, or in which any Borrower
obtains an interest, and all products, Proceeds, substitutions, and accessions
of or to any of the following (all of which, together with any other property in
which the Lender may in the future be granted a security interest, is referred
to herein as the "COLLATERAL"):
(a) All Accounts.
(b) All Inventory.
(c) All General Intangibles, including, without limitation, all
patents, trademarks, and tax refunds.
(d) All Equipment.
(e) All Goods.
(f) All Fixtures.
(g) All Chattel Paper.
(h) All books, records, and information relating to the Collateral
and/or to the operation of the Borrower's business, and all
rights of access to such books, records, and information, and
all
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property in which such books, records, and information are
stored, recorded, and maintained.
(i) All Instruments, Documents of Title, Documents, policies and
certificates of insurance, Investment Property, deposits,
deposit accounts, impressed accounts, compensating balances,
money, cash, or other property;
(j) All insurance proceeds, refunds, and premium rebates,
including, without limitation, proceeds of fire and credit
insurance, whether any of such proceeds, refunds, and premium
rebates arise out of any of the foregoing or otherwise.
(k) All liens, guaranties, rights, remedies, and privileges
pertaining to any of the foregoing including the right of
stoppage in transit.
4-2. Extent and Duration of Security Interest. The within grant of a
security interest is in addition to, and supplemental of, any security interest
previously granted by the Borrowers to the Lender and shall continue in full
force and effect applicable to all Liabilities until all Liabilities have been
paid and/or satisfied in full and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Lender.
ARTICLE 5 - CONDITIONS PRECEDENT.
- ---------------------------------
Precedent to the effectiveness of this Agreement, the establishment of
the financing arrangements contemplated hereby, and the making of the first loan
under the Revolving Credit, the documents respectively described in Sections 5-1
through and including 5-8, each in form and substance satisfactory to the Lender
shall have been delivered to the Lender, and the conditions respectively
described in Sections 5-9 through and including 5-21, shall have been satisfied:
5-1. Corporate Due Diligence. (a) Certificates of corporate good standing
issued by the respective Secretary(ies) of State of the Borrowers' states of
incorporation.
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(b) Certificates of due qualification, in good standing, issued by
the Secretary(ies) of State of each State in which the nature of the Borrowers'
business conducted or assets owned could require such qualification.
(c) A Certificate of the Borrowers' Clerk/Secretary of the due
adoption, continued effectiveness, and setting forth the texts of, each
corporate resolution adopted in connection with the establishment of the loan
arrangement contemplated by the Loan Documents and attesting to the true
signatures of each Person authorized as a signatory to any of the Loan
Documents.
5-2. Opinion. An opinion of counsel to the Borrower in form and substance
satisfactory to the Lender.
5-3. Landlord's Waivers. Waivers (each in form reasonably satisfactory to
the Lender) by each of the Borrowers' landlords.
5-4. Officers' Certificates. Certificates executed by the President and
the Treasurer of the Borrower and stating that the representations and
warranties made by the Borrower to the Lender in the Loan Documents are true and
complete as of the date of such Certificate, and that no event has occurred
which is or which, solely with the giving of notice or passage of time (or both)
would be an Event of Default.
5-5. Warrants. The Lender (or an affiliate of the Lender) shall receive
warrants from DynaGen, Inc. for the purchase of 250,000 share of DynaGen's
registered common stock at an exercise price equal to the market price per share
as of the date hereof. The terms regarding the issuance of the warrant shall be
evidenced by a Warrant in form, and containing terms and conditions,
satisfactory to the Lender or its affiliate, which shall include, among other
things, customary anti-dilution provisions.
5-6. Pledge Agreement(s). The Lender shall have received executed Pledge
Agreements, in form and substance acceptable to the Lender, pledging to the
Lender the outstanding capital stock of all subsidiaries of the Borrowers to
secure the Liabilities.
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5-7. Guaranties. The Lender shall have received unlimited guaranties in
form and substance acceptable to the Lender wherein each Borrower shall
unconditionally guaranty all Liabilities of the other Borrowers to the Lender.
5-8. Additional Documents. Such additional instruments and documents as
the Lender or its counsel reasonably may require or request.
5-9. Representations and Warranties. Each of the representations made by
or on behalf of any Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document, or paper provided by any
or on behalf of any Borrower shall be true and complete as of the date as of
which such representation or warranty was made.
5-10. No Event of Default. No event shall have occurred, or failed to
occur, which occurrence or which failure constitutes, or which, solely with the
passage of time or the giving of notice (or both) would constitute, an Event of
Default.
5-11. No Adverse Change. No event shall have occurred or failed to occur,
which occurrence or failure is or could have a materially adverse effect upon
the Borrowers' financial condition, operating results, or cash flows from the
Borrowers' financial condition at April 30, 1999.
5-12. Availability. The Borrower shall have minimum excess Availability of
at least $2,500,000.00 after giving effect to the first loans and advances to be
made under the Revolving Credit
5-13. Equity. The Borrowers shall have received proceeds of subordinated
indebtedness or equity from and after January 1, 1999 in an amount of at least
$4,650,000.00. The terms of such subordinated indebtedness or equity shall be
reasonably satisfactory to the Lender and in any event must provide that no cash
payments or distributions are to be made on account thereof until all
Liabilities to the Lender have been paid in full.
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5-14. Subordinated Indebtedness. The holders of the Borrowers' Subordinated
Indebtedness shall have entered into such subordination agreements with the
Lender as the Lender may reasonably require; and the Lender shall have received
intercreditor agreements, in form and substance to the Lender, with such of the
Borrowers' other creditors as the Lender may reasonably require.
5-15. Settlement with Shareholders of Superior Pharmeceutical Company. The
settlement agreement between the Borrowers and the former shareholders of
Superior Pharmaceutical Company shall contain such terms as are reasonably
acceptable to the Lender.
5-16. Financial Information. The Lender shall have received internally
prepared consolidated and consolidating financial statements for the Borrowers
for the period January 1, 1999 through October 31, 1999, the results of which
shall be reasonably satisfactory to the Lender.
5-17. Commercial Finance Examination. The Lender shall have conducted an
updated commercial finance examination of the Borrowers and shall be satisfied
with the results thereof.
5-18. Appraisals. The Lender shall have received an updated appraisal of
the Borrowers' Equipment and shall be satisfied with the results thereof.
5-19. Litigation. No action, suit, investigation, litigation or proceeding
shall be pending or threatened in any court or before any arbitrator or
governmental instrumentality that (i) reasonably could be expected to have a
material adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of any of the Borrowers or (ii)
would materially adversely affect the Revolving Credit Facility.
5-20. Consents. All governmental and third party consents and approvals,
if any, necessary in connection with the Revolving Credit Facility, shall have
been obtained (without the imposition of any conditions that are
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not acceptable to the Lender) and shall remain in effect; all applicable waiting
periods with respect to such consents and approvals shall have expired without
any action being taken by any competent authority; and, in the judgement of the
Lender, no law or regulation shall be applicable which restrains, prevents, or
imposes materially adverse conditions upon the Revolving Credit Facility.
Without limiting the foregoing, all material licenses required from the U.S.
Food and Drug Administration and other applicable licensing authorities for the
conduct of the Borrowers' business shall be in full force and effect and the
Borrowers shall not be in default thereunder.
5-21. Due Diligence. The Lender shall have completed its due diligence
investigation of the Borrowers in scope with the results of such due diligence
being satisfactory to the Lender. The Lender shall have received such background
information regarding the Borrowers and their officers and such customer and
credit checkings as the Lender shall deem appropriate and the Lender shall be
satisfied with the results thereof
ARTICLE 6 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS.
- --------------------------------------------------------------
To induce the Lender to establish the loan arrangement contemplated
herein and to make loans and advances and to provide financial accommodations
under the Revolving Credit (each of which loans shall be deemed to have been
made in reliance thereupon and each of which may be made by the Lender in the
Lender's discretion ), the Borrowers, in addition to all other representations,
warranties, and covenants made by the Borrowers in any other Loan Document,
makes those representations, warranties, and covenants included in this
Agreement.
6-1. Payment and Performance of Liabilities. The Borrowers shall pay each
Liability when due (or when demanded if payable on demand) and shall promptly,
punctually, and faithfully perform each other Liability.
6-2. Due Organization - Corporate Authorization - No Conflicts.(a) The
Borrowers presently are and shall hereafter remain in good standing as a
corporation in the State referenced in the Preamble hereto and are and shall
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hereafter remain duly qualified and in good standing in every other State in
which, by reason of the nature or location of the Borrowers' assets or operation
of the Borrowers' business, such qualification may be necessary, except where
the failure to so qualify would not have a material adverse effect on the
financial condition, assets and/or business of the Borrowers.
(b) Each Related Entity is listed on EXHIBIT 6-2, annexed hereto.
Each Related Entity is and shall hereafter remain in good standing in the State
in which incorporated and is and shall hereafter remain duly qualified in which
other State in which, by reason of that entity's assets or the operation of such
entity's business, such qualification may be necessary, except where the failure
to so qualify would not have a material adverse effect on the financial
condition, assets and/or business of any such Related Entity. The Borrowers
shall provide the Lender with prior written notice of any entity's becoming or
ceasing to be a Related Entity.
(c) The Borrowers have all requisite corporate power and authority
to execute and deliver to the Lender all and singular the Loan Documents to
which the Borrowers are a party and has and will hereafter retain all requisite
corporate power to perform all and singular the Liabilities.
(d) The execution and delivery by each Borrower of each Loan
Document to which it is a party; each Borrower's consummation of the
transactions contemplated by such Loan Documents (including, without limitation,
the creation of security and mortgage interests by the Borrower as contemplated
hereby) ; and each Borrower's performance under those of the Loan Documents to
which it is a party; the borrowings hereunder; and the use of the proceeds
thereof as contemplated herein:
(i) Have been duly authorized by all necessary
corporate action.
(ii) Do not, and will not, contravene in any material
respect any provision of any Requirement of Law or obligation of the
Borrower.
(iii) Will not result in the creation or imposition of,
or the obligation to create or impose, any Encumbrance upon any assets
of any Borrower pursuant to any Requirement of Law or obligation,
except pursuant to the Loan Documents.
(e) The Loan Documents have been duly executed and delivered by
each Borrower and are the legal, valid and binding obligations of each Borrower,
enforceable against each Borrower in accordance with their respective terms.
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6-3. Maintain Accounts. To permit the Lender to monitor the Borrowers'
financial performance and condition, each Borrower shall maintain all of such
Borrower's depository accounts with the Lender.
6-4. Trade Names. (a) EXHIBIT 6-4, annexed hereto, is a listing of:
(i) All names under which each Borrower conducted its business in
the previous five years.
(ii) All entities and/or persons with whom any Borrower
consolidated or merged in the previous five years, or from whom any
Borrower in the previous five years acquired in a single transaction or
in a series of related transactions substantially all of such entity's
or person's assets.
(iii)The representations made in ss.6-4(a)(i) and (ii) with respect
to any businesses acquired by the Borrowers are made to the best of the
Borrower's knowledge with respect to such businesses for periods prior to the
acquisition thereof.
(b) Except (i) upon not less than twenty-one (21) days prior
written notice given the Lender, and (ii) in compliance with all other
provisions of this Agreement, no Borrower will undertake or commit to undertake
any action such that the results of that action, if undertaken prior to the date
of this Agreement, would have been reflected on EXHIBIT 6-4.
(c) The conduct by any Borrower of such Borrower's business does
not infringe on the patents, industrial designs, trademarks, trade names, trade
styles, brand names, service marks, logos, copyrights, trade secrets, know-how,
confidential information, or other intellectual or proprietary property of any
third Person.
(d) Each Borrower owns and possesses, or has the right to use all
patents, industrial designs, trademarks, trade names, trade styles, brand names,
service marks, logos, copyrights, trade secrets, know-how, confidential
information, and other intellectual or proprietary property of any third Person
necessary for such Borrower's conduct of the Borrower's business.
6-5. Locations. The Collateral, and the books, records, and papers of
Borrowers pertaining thereto, are kept and maintained solely at the chief
executive offices of the Borrowers stated in the Preamble of this Agreement,
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and at those locations which are listed on EXHIBIT 6-5, annexed hereto, which
EXHIBIT includes all service bureaus with which any such records are maintained
and the names and addresses of each of the Borrower's landlords. Except (i) to
accomplish sales of Inventory in the ordinary course of business or (ii) to
utilize such of the Collateral as is removed from such locations in the ordinary
course of business (such as motor vehicles), the Borrower shall not remove any
Collateral from said chief executive offices or those locations listed on
EXHIBIT 6-5.
6-6. Title to Assets. Each Borrower is, and shall hereafter remain, the
owner of the all of its present and future assets free and clear of all
Encumbrances other than those set forth in EXHIBIT 6-6 hereto.
6-7. Indebtedness. The Borrowers do not and shall not hereafter have any
Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lender.
(b) The Indebtedness (if any) listed on EXHIBIT 6-7, annexed
hereto.
(c) Ordinary trade indebtedness incurred in the normal course of
each Borrower's business.
6-8. Insurance Policies. (a) EXHIBIT 6-8, annexed hereto, is a schedule of
all insurance policies owned by any Borrower or under which any Borrower is the
named insured. Each of such policies is in full force and effect. Neither the
issuer of any such policy nor the Borrower is in default or violation of any
such policy.
(b) Each Borrower shall have and maintain at all times insurance
covering such risks, in such amounts, containing such terms, in such form, for
such periods, and written by such companies as may be reasonably satisfactory to
the Lender. The Lender acknowledges that the insurance set forth in EXHIBIT 6-8
is satisfactory to the Lender as of the date hereof. All insurance carried by
any the Borrower shall provide for a minimum of thirty (30) days' written notice
of cancellation to the Lender and all such insurance which covers the Collateral
shall include an endorsement in favor of the Lender, which endorsement shall
provide that the insurance, to the extent of the Lender's interest therein,
shall not be impaired or invalidated, in whole
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or in part, by reason of any act or neglect of such Borrower or by the failure
of such Borrower to comply with any warranty or condition of the policy. In the
event of the failure by any Borrower to maintain insurance as required herein,
the Lender, at its option, may obtain such insurance, provided, however, the
Lender's obtaining of such insurance shall not constitute a cure or waiver of
any Event of Default occasioned by such Borrower's failure to have maintained
such insurance. Each Borrower shall furnish to the Lender certificates or other
evidence satisfactory to the Lender regarding compliance by such Borrower with
the foregoing insurance provisions.
(c) Each Borrower shall advise the Lender of each claim made by
such Borrower under any policy of insurance which covers the Collateral and will
permit the Lender, at the Lender's option in each instance, to the exclusion of
such Borrower, to conduct the adjustment of each such claim Each Borrower hereby
appoints the Lender as such Borrower's attorney in fact to obtain, adjust,
settle, and cancel any insurance described in this section and to endorse in
favor of the Lender any and all drafts and other instruments with respect to
such insurance. Such appointment, being coupled with an interest, is irrevocable
until this Agreement is terminated by a written instrument executed by a duly
authorized officer of the Lender. The Lender shall not be liable on account of
any exercise pursuant to said power except for any exercise in actual willful
misconduct and bad faith. The Lender may apply any proceeds of such insurance
against the Liabilities, whether or not such have matured, in such order of
application as the Lender may determine.
6-9. Licenses. EXHIBIT 6-9, annexed hereto, is a schedule of all license,
distributor, franchise, and similar agreements issued to, or to which any
Borrower is a party. Each of such agreements is in full force and effect. No
party to any such agreement is in default or violation of any such agreement and
such Borrower has not received any notice or threat of cancellation of any such
agreement.
6-10. Leases. EXHIBIT 6-10, annexed hereto, is a schedule of all presently
effective Leases and Capital Leases. Each of such Leases and Capital Leases is
in full force and effect. No Borrower is in material default or violation of any
such Lease or Capital Lease and no Borrower has received any notice or
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threat of cancellation of any such Lease or Capital Lease. Each Borrower hereby
authorizes the Lender at any time and from time to time to contact any of the
Borrowers' landlords in order to confirm each Borrower's continued compliance
with the terms and conditions of the Lease(s) between such Borrower and that
landlord and to discuss such issues, concerning such Borrower's occupancy under
such Lease(s), as the Lender may determine.
6-11. Requirements of Law. Each Borrower is in compliance with, and shall
hereafter comply with and use its assets in compliance with, all Requirements of
Law. No Borrower has received any notice of any violation of any Requirement of
Law (whether or not such violation is material), which violation has not been
cured or otherwise remedied.
6-12. Maintain Properties. Each Borrower shall:
(a) Keep the Collateral in good order and repair (ordinary reasonable wear
and tear and insured casualty excepted).
(b) Not suffer or cause the waste or destruction of any material part of
the Collateral.
(c) Not use any of the Collateral in violation of any policy of insurance
thereon.
(d) Not sell, lease, or otherwise dispose of any of the Collateral, other
than the following:
(i) The sale of Inventory in compliance with this Agreement.
(ii) The disposal of Equipment which is obsolete, worn out, or
damaged beyond repair, which Equipment is replaced to the extent necessary to
preserve or improve the operating efficiency of the Borrower.
(iii) The turning over to the Lender of all Receipts as provided
herein.
6-13. Pay Taxes. (a)(i) No federal income tax returns of any Borrower is
presently under examination by the Internal Revenue Service. All deficiencies,
assessments, and other amounts asserted as a result of any previous examination
have been fully paid or settled. No agreement is extant which waives or extends
any statute of limitations applicable to the right of the Internal Revenue
Service to assert a deficiency or make any other claim
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for or in respect to federal income taxes. No issue has been raised in any
examination which, by application of similar principles, reasonably could be
expected to result in the assertion of a deficiency for any fiscal year open for
examination, assessment, or claim by the Internal Revenue Service.
(ii) No returns of any Borrower for state and local income, excise,
sales, and other taxes is presently being examined by the relevant taxing
authority. All deficiencies, assessments, and other amounts asserted as a result
of any previous examination have been fully paid or settled. No agreement is
extant which waives or extends any statute of limitations applicable to the
right of any state taxing authority to assert a deficiency or make any other
claim for or in respect to any such state taxes. No issue has been raised in any
examination which, by application of similar principles, reasonably could be
expected to result in the assertion of a deficiency for any fiscal year open for
examination, assessment, or claim by any state or local taxing authority.
(b) Each Borrower has, and hereafter shall: pay, as they become
due and payable, all taxes and unemployment contributions and other charges of
any kind or nature levied, assessed or claimed against such Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
upon any asset of such Borrower or by any governmental authority; properly
exercise any trust responsibilities imposed upon such Borrower by reason of
withholding from employees' pay; timely make all contributions and other
payments as may be required pursuant to any Employee Benefit Plan now or
hereafter established by such Borrower; and timely file all tax and other
returns and other reports with each governmental authority to whom each Borrower
is obligated to so file.
(c) At its option, the Lender may, but shall not be obligated to,
pay any taxes, unemployment contributions, and any and all other charges levied
or assessed upon any Borrower or the Collateral by any person or entity or
governmental authority, and make any contributions or other payments on account
of any Borrower's Employee Benefit Plan as the Lender, in the Lender's
discretion, may deem necessary or desirable, to protect, maintain, preserve,
collect, or realize upon any or all of the Collateral or the value thereof or
any right or remedy pertaining thereto, provided, however, the Lender's making
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of any such payment shall not constitute a cure or waiver of any Event of
Default occasioned by the Borrower's failure to have made such payment.
6-14. No Margin Stock. No Borrower is engaged in the business of extending
credit for the purpose of purchasing or carrying any margin stock (within the
meaning of Regulations U.T. and X. of the Board of Governors of the Federal
Reserve System of the United States). No part of the proceeds of any borrowing
from the Lender will be used at any time to purchase or carry any such margin
stock or to extend credit to others for the purpose of purchasing or carrying
any such margin stock.
6-15. ERISA. Neither any Borrower nor any ERISA Affiliate ever has or
hereafter shall:
(a) Violate or fail to be in full compliance with any Borrower's
Employee Benefit Plan.
(b) Fail timely to file all reports and filings required by ERISA
to be filed by any Borrower.
(c) Engage in any "prohibited transactions" or "reportable events"
(respectively as described in ERISA).
(d) Engage in, or commit, any act such that a tax or penalty could
be imposed upon any Borrower on account thereof pursuant to ERISA.
(e) Accumulate any material funding deficiency within the meaning
of ERISA.
(f) Terminate any Employee Benefit Plan such that a lien could be
asserted against any assets of any Borrower on account thereof pursuant
to ERISA.
(g) Be a member of, contribute to, or have any obligation under
any Employee Benefit Plan which is a multiemployer plan within the
meaning of Section 4001(a) of ERISA.
6-16. Hazardous Materials.(a) No Borrower has: (i) been legally responsible
for any release or threat of release of any Hazardous Material or (ii) received
notification of any release or threat of release of any Hazardous Material from
any site or vessel occupied or operated by any Borrower and/or of the incurrence
of any expense or loss in connection with
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the assessment, containment, or removal of any release or threat of release of
any Hazardous Material from any such site or vessel.
(b) Each Borrower shall: (i) dispose of any Hazardous Material
only in compliance with all Environmental Laws and (ii) not store on any site or
vessel occupied or operated by any Borrower and not transport or arrange for the
transport of any Hazardous Material, except if such storage or transport is in
the ordinary course of any Borrower's business and is in compliance with all
Environmental Laws.
(c) Each Borrower shall provide the Lender with written notice
upon such Borrower's obtaining knowledge of any incurrence of any expense or
loss by any governmental authority or other Person in connection with the
assessment, containment, or removal of any Hazardous Material, for which expense
or loss any Borrower may be liable.
6-17. Litigation. Except as set forth in EXHIBIT 6-17, there is not
presently pending by or against any Borrower any suit, action, proceeding, or
investigation which, if determined adversely to such Borrower, would have a
material adverse effect upon such Borrower's financial condition or ability to
conduct its business as such business is presently conducted or is contemplated
to be conducted in the foreseeable future.
6-18. Dividends or Investments. No Borrower shall
(a) Pay any cash dividend or make any other distribution in
respect of any class of such Borrower's capital stock.
(b) Own, redeem, retire, purchase, or acquire any of such
Borrower's capital stock.
(c) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other
entity.
(d) Merge or consolidate or be merged or consolidated with or into
any other corporation or other entity.
(e) Consolidate any of the Borrower's operations with those of any
other corporation or other entity.
(f) Organize or create any Related Entity, unless (i) the Related
Entity executes a guaranty of the Liabilities and grants the Lender
first perfected liens on its assets, and (ii) the stock of such Related
Entity
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is pledged to the Lender, and (iii) no Event of Default exists or would
arise from the creation thereof.
(g) Subordinate any debts or obligations owed to such Borrower by
any third party to any other debts owed by such third party to any
other Person.
Notwithstanding the foregoing, the Lead Borrower may make payment on account
of the First Put (as defined in the Stock Purchase Warrant dated June 18, 1997
by and between the Lead Borrower and Sirrom Capital Corporation), as long as (i)
the payment of the First Put is made from the proceeds of additional equity
raised for that purpose by the Lead Borrower and not from any other of its
assets, and (ii) no Suspension Event or Event of Default has occurred and is
continuing.
6-19. Loans. No Borrower shall make any loans or advances to, nor acquire
the Indebtedness of, any Person, provided, however, the foregoing does not
prohibit any of the following:
(a) Advance payments made to such Borrower's suppliers in the
ordinary course.
(b) Advances to such Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of such Borrower,
which expenses are properly substantiated by the person seeking such
advance and properly reimbursable by such Borrower.
6-20. Protection of Assets. The Lender, at the Lender's discretion, and
from time to time, may discharge any tax or Encumbrance on any of the
Collateral, or take any other action that the Lender may deem necessary or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral. The Lender shall not have any obligation to undertake any of the
foregoing and shall have no liability on account of any action so undertaken
except where there is a specific finding in a judicial proceeding (in which the
Lender has had an opportunity to be heard), from which finding no further appeal
is available, that Lender had acted in actual bad faith or in a grossly
negligent manner. Each Borrower shall pay to the Lender, on demand, or the
Lender, in its discretion, may add to the Loan Account, all
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amounts paid or incurred by the Lender pursuant to this section. The obligation
of the Borrowers to pay such amounts is a Liability.
6-21. Line of Business. The Borrowers shall not engage in any business
other than the business in which it is currently engaged or a business
reasonably related thereto.
6-22. Affiliate Transactions. The Borrowers shall not make any payment, nor
give any value to any Related Entity except for goods and services actually
purchased by a Borrower from, or sold by a Borrower to, such Related Entity for
a price which shall
(a) be competitive and fully deductible as an "ordinary and
necessary business expense" and/or fully depreciable under the Internal
Revenue Code of 1986 and the Treasury Regulations, each as amended; and
(b) not differ from that which would have been charged in an arms
length transaction; and
(c) be consistent with prior practices of the Borrowers.
6-23. Additional Assurances. (a) No Borrower is the owner of, nor has it
any interest in, any property or asset which, immediately upon the satisfaction
of the conditions precedent to the effectiveness of the loan arrangement
contemplated hereby (Article 5), will be not be subject to a perfected security
interest in favor of the Lender (subject only to those Encumbrances (if any)
described on EXHIBIT 6-6, annexed hereto) to secure the Liabilities and will not
hereafter acquire any asset or any interest in property which is not,
immediately upon such acquisition, subject to such a perfected security interest
in favor of the Lender to secure the Liabilities (subject only to Encumbrances
(if any) permitted pursuant to Section 6-6, above).
(b) Each Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Lender may reasonably request to carry into effect the
provisions and intent of this Agreement; to protect and perfect the Lender's
security interest in the Collateral; and to comply with all applicable statutes
and laws; and facilitate the collection of the Receivables
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Collateral. Each Borrower shall execute all such instruments as may be required
by the Lender with respect to the recordation and/or perfection of the security
interests created herein. A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument executed pursuant to
this Section shall be sufficient for filing to perfect the security interests
granted herein.
6-24. Adequacy of Disclosure. (a) All financial statements furnished to the
Lender by the Borrowers have been prepared in accordance with GAAP consistently
applied and present fairly the condition of the Borrower at the date(s) thereof
and the results of operations and cash flows for the period(s) covered. There
has been no change in the financial condition, results of operations, or cash
flows of the Borrowers since the date(s) of such financial statements, other
than changes which have not been materially adverse, either singularly or in the
aggregate.
(b) The Borrowers do not have any contingent obligations or obligation
under any Lease or Capital Lease which is not noted in the Borrowers' financial
statements furnished to the Lender prior to the execution of the within
Agreement.
(c) No document, instrument, agreement, or paper now or hereafter given
the Lender by or on behalf of the Borrowers or any guarantor of the Liabilities
in connection with the Lender's execution of the within Agreement contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements therein not
misleading. There is no fact known to any Borrower which has, or which, in the
foreseeable future could have, a material adverse effect on the financial
condition of any Borrower or any such guarantor which has not been disclosed in
writing to the Lender.
6-25. Year 2000 Compliance.
(a) Based upon a diligent inquiry undertaken by the Borrowers, it
appears that, except as set forth on EXHIBIT 6-25, annexed hereto, the
Borrowers' operations are Year 2000 Compliant.
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(b) The Borrowers have developed a detailed plan and timetable
with respect to the Borrower's operations becoming fully Year 2000 Compliant as
set forth on EXHIBIT 6-25.
(c) Following the Borrowers' operations becoming Year 2000
Compliant, the Borrowers will not suffer or permit their operations thereafter
to cease to be Year 2000 Compliant in any manner which might have more than a
DE MINIMIS effect on their operations.
6-26. Restrictions upon Borrowers and Subsidiaries. Except for this
Agreement, the Borrowers shall not, and shall not permit any of their
subsidiaries to, enter into any agreements with any Person which restrict,
limit, or otherwise impair the right and ability of any subsidiary to pay
dividends or otherwise make loans and distributions to its parent or other
Related Entities, to provide guaranties of its parent's and other Related
Entities' obligations and/or to grant Encumbrances on its assets to secure such
obligations and guaranties.
6-27. Subordinated Indebtedness. The Borrowers shall not
(a) effect or permit any change in or amendment to the terms
of any instruments, documents and agreements relating to
Subordinated Indebtedness; and
(b) directly or indirectly make any payment on account of any
Subordinated Indebtedness (including as a redemption,
repurchase, or retirement of all or any portion thereof),
except as expressly permitted by the Lender in any agreement
between the Lender and the holders of such Subordinated
Indebtedness.
6-26. Other Covenants. No Borrower shall indirectly do or cause to be
done any act which, if done directly by such Borrower, would breach any covenant
contained in this Agreement.
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ARTICLE 7 - USE AND COLLECTION OF COLLATERAL.
- ---------------------------------------------
7-1. Adjustments and Allowances. The Borrowers may grant such allowances
or other adjustments to the Borrowers' Account Debtors (exclusive of extending
the time for payment of any Account or Account Receivable, which shall not be
done without first obtaining the Lender's written consent in each instance) as
the Borrowers may reasonably deem to accord with sound business practice,
provided, however (a) the Borrowers shall furnish the Lender with those reports
described in Section 10-4 below, with respect to any such adjustments or
allowances and (b) the authority granted the Borrowers pursuant to this Section
may be limited or terminated by the Lender at any time in the Lender's
discretion.
7-2. Validity of Accounts. The amount of each Account shown on the books,
records, and invoices of each Borrower represented as owing by each Account
Debtor is and will be the correct amount actually owing by such Account Debtor
and shall have been fully earned by performance by such Borrower.
(b) The Lender, from time to time (at the expense of the Borrowers in each
instance), may verify the validity, amount, and all other matters with respect
to the Receivables Collateral directly with Account Debtors (including without
limitation, by forwarding balance verification requests to the Borrowers'
Account Debtors), and with the Borrowers' accountants, collection agents, and
computer service bureaus (each of which is hereby authorized and directed to
cooperate in full with the Lender and to provide the Lender with such
information and materials as the Lender may request.
(c) The Borrowers have no knowledge of any impairment of the validity or
collectibility of any of the Accounts and shall notify the Lender of any such
fact immediately after any Borrower becomes aware of any such impairment.
(d) No Borrower shall post any bond to secure such Borrower's performance
under any agreement to which such Borrower is a party nor cause any surety,
guarantor, or other third party obligee to become liable to perform any
obligation of any Borrower (other than to the Lender) in the event of any
Borrower's failure so to perform.
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7-3. Notification to Account Debtors. The Lender shall have the right at
any time (whether or not an Event of Default has occurred) to notify any of any
Borrower's Account Debtors to make payment directly to the Lender and to collect
all amounts due on account of the Collateral.
7-4. Use of Inventory Collateral.(a) The Borrowers shall not engage in any
sale of the Inventory other than for fair consideration in the conduct of the
Borrowers' business in the ordinary course and shall not engage in sales or
other dispositions to creditors; sales or other dispositions in bulk; and any
use of any of the Inventory in breach of any provision of this Agreement.
(b) No sale of Inventory shall be on consignment, approval, or
under any other circumstances such that, such Inventory may be returned to the
Borrowers without the consent of the Lender.
7-5. Returned Inventory. (a) Each Borrower will provide the Lender with
written notice promptly upon the occurrence of any event described in Subsection
7-5, below, and shall hold any Inventory which is subject to such event for such
disposition as the Lender may direct. If the Lender does not issue specific
instructions to the Borrower concerning such Inventory within Five (5) days of
the giving of such written notice, such Borrower may dispose thereof in such
manner as such Borrower reasonably may deem to accord with sound business
practice (subject to any requirements of applicable law and subject to the
Lender's security interest in any Collateral that may arise from the resale or
other disposition thereof by the Borrower), provided, however, in the event any
such Inventory consists of perishable items, such Borrower may dispose of such
perishables in accordance with the provisions of this Section without awaiting
instructions from the Lender in respect thereto.
(b) Subsection (a) of this Section relates to any of the following
Inventory:
(i) Any which is returned by any Account Debtor to any Borrower
(whether or not such return has been agreed to by such Borrower) and is
not in turn returned by such Borrower to such Account Debtor.
(ii) Any which is repossessed by a Borrower.
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(iii) Any which is downgraded in quality or has its marketability
otherwise affected.
(iv) Any which is detained from, or refused entry into, or required
to be removed from the United States by the appropriate governmental
authorities.
7-6. Inventory Quality. All Inventory now owned or hereafter acquired by
any Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances). No tangible
personal property of any Borrower is or will be stored or entrusted with a
bailee or other third party.
ARTICLE 8 - RECEIVABLES.
- ------------------------
8-1. Proceeds and Collection of Accounts.(a) It is recognized and intended
that all Receipts constitute Collateral and proceeds of Collateral. A portion of
the Receivables Collateral consists of Receipts.
(b) Whether or not any Liabilities are then outstanding, each Borrower
shall cause each of the Borrower's Account Debtors to forward all Receipts
proceeds of the Receivables Collateral directly to a lock box, blocked account,
or similar recipient designated by the Lender and over which the Lender has sole
access and control.
(c) All Receipts and collections of the Receivables Collateral which,
notwithstanding the provisions of Subsection 8-1(b) are received by any Borrower
or come under the control of any Borrower shall be held in trust by such
Borrower for the Lender; shall not be commingled with any of such Borrower's
other funds; and shall be deposited and/or transferred only to such lock box,
blocked account, or similar recipient designated by the Lender pursuant to
Subsection 8-1(b), above, or as otherwise instructed by the Lender.
8-2. Proceeds and Collection of Accounts Held in Trust. In the event that,
notwithstanding the provisions of this Article, any Borrower receives or
otherwise has dominion and control of any Receipts, or any proceeds or
collections of any Collateral, such Receipts, proceeds, and collections shall be
held in trust by such Borrower for the Lender and shall not be commingled
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with any of such Borrower's other funds or deposited in any account of the
Borrower other than as instructed by the Lender.
8-3. Payment of Liabilities. On each Business Day, the Lender shall apply,
towards the unpaid principal balance of the Loan Account, the aggregate of
Receipts and Receivables Collateral received by the Lender as provided in
Section 8-1 above, after allowing 2 (Two) Business Days for their collection.
ARTICLE 9 - LENDER AS BORROWER'S ATTORNEY-IN-FACT.
- --------------------------------------------------
9-1. Appointment as Attorney-In-Fact. Each Borrower hereby irrevocably
constitutes and appoints the Lender as each Borrower's true and lawful attorney,
with full power of substitution, to convert the Collateral into cash at the sole
risk, cost, and expense of the Borrowers, but for the sole benefit of the
Lender. The rights and powers granted the Lender by the within appointment
include but are not limited to the right and power to:
(a) Prosecute, defend, compromise, or release any action relating
to the Collateral.
(b) Sign change of address forms to change the address to which
each Borrower's mail is to be sent to such address as the Lender shall
designate; receive and open each Borrower's mail; remove any
Receivables Collateral and Proceeds of Collateral therefrom and turn
over the balance of such mail either to the Borrower or to any trustee
in bankruptcy, receiver, assignee for the benefit of creditors of each
Borrower, or other legal representative of each Borrower whom the
Lender determines to be the appropriate person to whom to so turn over
such mail.
(c) Endorse the name of any Borrower in favor of the Lender upon
any and all checks, drafts, notes, acceptances, or other items or
instruments; sign and endorse the name of any Borrower on, and receive
as secured party, any of the Collateral, any invoices, schedules of
Collateral, freight or express receipts, or bills of lading, storage
receipts, warehouse receipts, or other documents of title respectively
relating to the Collateral.
(d) Sign the name of any Borrower on any notice to the Borrower's
Account Debtors or verification of the Receivables Collateral; sign the
Borrower's name on any Proof of Claim in Bankruptcy against Account
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Debtors, and on notices of lien, claims of mechanic's liens, or
assignments or releases of mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the payment
of any letter of credit and/or banker's acceptance of which any
Borrower is a beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver,
alter or supply goods, if any, necessary to fulfill in whole or in part
the purchase order of any customer of any Borrower.
(g) Use, license or transfer any or all General Intangibles of any
Borrower.
(h) Sign and file or record any financing or other statements in
order to perfect or protect the Lender's security interest in the
Collateral.
9-2. No Obligation to Act. The Lender shall not be obligated to do any of
the acts or to exercise any of the powers authorized by Section 9-1 herein, but
if the Lender elects to do any such act or to exercise any of such powers, it
shall not be accountable for more than it actually receives as a result of such
exercise of power, and shall not be responsible to any Borrower for any act or
omission to act except for any act or omission to act as to which there is a
final determination made in a judicial proceeding (in which proceeding the
Lender has had an opportunity to be heard) which determination includes a
specific finding that the subject act or omission to act had been grossly
negligent or in actual bad faith.
ARTICLE 10 - FINANCIAL AND OTHER REPORTING REQUIREMENTS / FINANCIAL COVENANTS.
- ------------------------------------------------------------------------------
10-1. Maintain Records. Each Borrower shall at all times
(a) Keep proper books of account, in which full, true, and
accurate entries shall be made of all of each Borrower's transactions,
all in accordance with GAAP applied consistently with prior periods to
fairly reflect the financial condition of each Borrower at the close
of, and its results of operations for, the periods in question.
(b) Keep accurate current records of the Collateral including,
without limitation, accurate current stock, cost, and sales records of
its Inventory, accurately and sufficiently itemizing and describing the
kinds,
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types, and quantities of Inventory and the cost and selling
prices thereof.
(c) Retain independent certified public accountants who are
reasonably satisfactory to the Lender and instruct such accountants to
fully cooperate with, and be available to, the Lender to discuss each
Borrower's financial performance, financial condition, operating
results, controls, and such other matters, within the scope of the
retention of such accountants, as may be raised by the Lender. The
Lender acknowledges that Wolf & Co. are acceptable independent
certified public accountants.
(d) Not change any Borrower's fiscal year.
(e) Not change any Borrower's taxpayer identification number.
10-2. Access to Records. (a) Each Borrower shall accord the Lender and the
Lender's representatives with access from time to time as the Lender and such
representatives may require to all properties owned by or over which any
Borrower has control. The Lender, and the Lender's representatives, shall have
the right, and each Borrower will permit the Lender and such representatives
from time to time as the Lender and such representatives may request, to
examine, inspect, copy, and make extracts from any and all of any Borrower's
books, records, electronically stored data, papers, and files. Each Borrower
shall make all of the Borrowers' copying facilities available to the Lender.
(b) Each Borrower hereby authorizes the Lender and the Lender's
representatives to:
(i) Inspect, copy, duplicate, review, cause to be reduced to hard
copy, run off, draw off, and otherwise use any and all computer or
electronically stored information or data which relates to any
Borrower, which information or data is in the possession of any
Borrower or any service bureau, contractor, accountant, or other
person, and directs any such service bureau, contractor, accountant, or
other person fully to cooperate with the Lender and the Lender's
representatives with respect thereto.
(ii) Verify at any time the Collateral or any portion thereof,
including verification with Account Debtors, and/or with each
Borrower's computer billing companies, collection agencies, and
accountants and to
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sign the name of any Borrower on any notice to any Borrower's Account
Debtors or verification of the Collateral.
10-3. Immediate Notice to Lender. The Lead Borrower shall provide the
Lender with written notice immediately upon the occurrence of any of the
following events, which written notice shall be with reasonable particularity as
to the facts and circumstances in respect of which such notice is being given:
(a) Any change in any executive officers, directors, or key
employees of the Lead Borrower.
(b) The completion of any physical count of any Borrower's
Inventory (together with a copy of the certified results thereof).
(c) Any material change to the terms of any material contract to
which any Borrower is a party.
(d) Any material change in the business, operations, or financial
affairs of any Borrower.
(e) The occurrence of any Event of Default.
(f) Any litigation which, if determined adversely to any Borrower,
would have a material adverse effect on the financial condition of any
Borrower.
(g) The distribution of any materials to the shareholders of any
Borrower (qua such shareholders), which notice shall be accompanied by
a copy of such filings.
(h) The filing of any materials by any Borrower with the
Securities and Exchange Commission (including all Form 10Q's and
10K's), which notice shall be accompanied by a copy of such materials.
10-4. Borrowing Base Certificate. At such intervals as the Lender may from
time to time specify (weekly, unless notice to the contrary is so given), the
Lead Borrower shall provide the Lender with a Borrowing Base Certificate (in
such form as the Lender may specify from time to time), which Certificate shall
include a Schedule of (i) all Receivables Collateral and Inventory which has
come into existence, (ii) sales, (iii) credit memoranda, and (iv) cash receipts,
each since the date of such Schedule then most recently provided to the Lender.
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10-5. Monthly Reports.
(a) Monthly, within Twenty (20) days following the end of the
previous month, the Lead Borrower shall provide the Lender with the
following:
(i) An aging of the Borrowers' accounts receivable as
of the end of the subject month.
(ii) A reconciliation of the above described aging to
Availability and to the general ledger as of the end of the
subject month.
(iii) A Certificate (in such form as may be specified by
the Lender from time to time and signed by the Lead Borrower's
President or Treasurer) concerning the Borrowers' Inventory as
of the end of the subject month.
(iv) An aging of the Borrowers' accounts payable.
(b) Monthly, within Thirty (30) days following the end of the
previous month, the Lead Borrower shall provide the Lender with the
following:
(i) An internally prepared consolidated and consolidating
financial statement of the Borrowers' financial
condition at, and the results of its operations for,
the period ending with the end of the subject month,
which financial statement shall include, at a minimum,
a balance sheet, income statement, cash flow and
comparison for the corresponding month of the then
immediately previous year, as well as to any financial
projections furnished to the Lender, certified to be
true and accurate by the Lead Borrower's chief
financial officer;
(ii) Any report filed during the subject month with any
insurance company with whom a reporting form of policy
is carried.
10-6. Projections. Annually on or before Thirty (30) days prior to the end
of each fiscal year, management prepared monthly financial projections for the
next fiscal year, including at a minimum a projected income statement, balance
sheet, cash flow statement and Availability calculation.
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10-7. Annual Reports. (a) Annually, within ninety (90) days following the
end of the Borrowers' fiscal year, the Lead Borrower shall furnish the Lender
with (i) an original signed counterpart of the Borrowers' consolidated annual
financial statement, which statement shall have been prepared by, and bearing
the unqualified opinion of, the Borrowers' independent certified public
accountants (i.e. said statement shall be "certified" by such accountants), and
(ii) the unaudited consolidating financial statement for each Related Entity of
the Lead Borrower. Such annual statements shall include, at a minimum (with
comparative information for the then prior fiscal year) a balance sheet, income
statement, statement of changes in shareholders' equity, and cash flows.
(b) Each annual statement delivered under (a)(i) above shall be accompanied
by such accountant's Certificate indicating that to the best knowledge of such
accountant, no event has occurred which is or which, solely with the passage of
time or the giving of notice (or both) would be, an Event of Default.
(c) Annually, within 30 days after filing, copies of the Borrowers' federal
and state tax returns.
10-8. Officers' Certificates. The Lead Borrower shall cause the Lead
Borrower's President and Treasurer respectively to provide such Person's
Certificate with those monthly, quarterly, and annual statements to be furnished
pursuant to this Agreement, which Certificate shall:
(a) Indicate that the subject statement was prepared in accordance
with GAAP consistently applied, and presents fairly the financial
condition of the Borrower at the close of, and the results of the
Borrowers' operations and cash flows for, the period(s) covered,
subject, however (with the exception of the Certificate which
accompanies such annual statement) to usual year end adjustments.
(b) Indicate either that (i) no Event of Default has occurred or
(ii) if such an event has occurred, its nature (in reasonable detail)
and the steps (if any) being taken or contemplated by the Borrower to
be taken on account thereof.
(c) Include calculations concerning the Borrowers' compliance (or
failure to comply) at the date of the subject statement with each of
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the financial performance covenants included in Sections 10-12 through
and including 10-14, below.
10-9. Additional Financial Information. In addition to the foregoing, the
Borrowers promptly shall provide the Lender with such other and additional
information concerning the Borrowers, the Collateral, the operation of the
Borrowers' business, and the Borrowers' financial condition, including original
counterparts of financial reports and statements, as the Lender may from time to
time request from any Borrower.
10-10. Audits and Appraisals. (a) The Lender may from time to time conduct
commercial finance audits of the Borrower's books and records (in each event, at
the Borrowers' expense estimated at $650.00 per day per person plus all out of
pocket expenses).
(b)(i) The Lender, at the expense of the Borrowers, may participate
in and/or observe each physical count and/or inventory of so much of the
Collateral as consists of Inventory which is undertaken on behalf of the
Borrowers.
(ii) Upon the Lender's request from time to time, each Borrower
shall obtain, or shall permit the Lender to obtain (in all events, at the
Borrowers' expense) physical counts and/or inventories of the Collateral in form
and substance and by such inventory takers as are satisfactory to the Lender,
each of which physical counts/inventories shall be observed by the Borrowers'
accountants.
(iii) Upon the Lender's request from time to time, the Borrower's
shall permit the Lender to obtain appraisals of the Borrowers' assets (in all
events, at the Borrowers' expense) conducted by such appraisers as are
satisfactory to the Lender.
10-11. Consolidated Operating Cash Flow to Total Debt Service. (a) The
Borrowers shall not permit the ratio of Consolidated Operating Cash Flow to
Total Debt Service to be less than 1.50:1.00 as at its fiscal month ending
November 30, 1999.
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(b) The Borrowers shall not permit the ratio of Consolidated Operating
Cash Flow to Total Debt Service for any of its fiscal quarters to be less than
1.5:1.0, commencing with the quarter ending December 31, 1999.
10-12. Consolidated Tangible Net Worth. The Borrowers shall not permit their
Consolidated Tangible Net Worth to be less than the following as of the
following dates:
========================================================================
DATE TANGIBLE NET WORTH
========================================================================
December 31, 1999 $4,150,000.00
------------------------------------------------------------------------
Each fiscal quarter end after $4,150,000.00 plus fifty percent
December 31, 1999 (50%) of the Consolidated Net Income
of the Borrowers (but not any loss)
for each such quarter.
========================================================================
10-13. Minimum Availability. The Borrowers shall at all times maintain
minimum Availability of at least $1,000,000.00.
10-14. Maximum Research and Development Expenditures. The Borrowers shall
not make or incur expenditures for research and development in excess of
$4,000,000.00 in any fiscal year.
ARTICLE 11 - EVENTS OF DEFAULT.
- -------------------------------
Upon the occurrence of any one or more of the following events (herein,
"Events of Default"), any and all Liabilities of the Borrowers to the Lender
shall become immediately due and payable, at the option of the Lender and
without notice or demand. Upon the occurrence of any Event of Default de scribed
in Section 11-8 any and all Liabilities shall become due and payable without any
further act on the part of the Lender. The occurrence of any Event of Default
shall also constitute, without notice or demand, a default under all other
agreements between the Lender and Borrowers and instruments and papers given the
Lender by the Borrowers, whether such agreements, instru ments, or papers now
exist or hereafter arise.
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11-1. Failure to Pay. The failure by the Borrowers to pay any principal,
interest or fees payable under ss.ss.3-13 or 3-14 hereof when due.
11-2. Failure to Make Other Payments. The failure by the Borrowers to pay
when due any other Liabilities, which failure continues for five (5) days.
11-3. Failure to Perform Liability (No Grace). The failure by the Borrowers
to promptly, punctually and faithfully perform, discharge, or comply with the
provisions of ss.ss.6-3, 6-6, 6-7, 6-8, 6-12(d), 6-18, 6-19, 6-21, 6-22, 6-26,
6- 27, Article 8 or Article 10 hereof.
11-4. Failure to Perform Liability (Grace). The failure by the Borrowers to
promptly, punctually and faithfully perform, discharge, or comply with any
Liability not described in ss.ss.11-1, 11-2, or 11-3 hereof which failure
continues for fifteen (15) days after notice from the Lender.
11-5. Misrepresentation. The determination by the Lender that any represen
tation or warranty heretofore, now, or hereafter made by any Borrower to the
Lender, in any document, instrument, agreement, or paper was not true or accu-
rate in all material respects when given.
11-6. Acceleration of Other Debt. The occurrence of any event such that any
indebtedness of any Borrower to any creditor in excess of $100,000.00, other
than the Lender, could be accelerated, notwithstanding that such acceleration
has not taken place.
11-7. Default Under Other Agreements. The occurrence of any event of
default under any agreement between the Lender and any Borrower or instrument or
paper given the Lender by any Borrower (in each case, after expiration of any
applicable grace periods thereunder), whether such agreement, instrument, or
paper now exists or hereafter arises (notwithstanding that the Lender may not
have exercised its rights upon default under any such other agreement, instru
ment or paper).
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11-8. Business Failure. Any act by, against, or relating to any Borrower,
or its property or assets, which act constitutes the application for, consent
to, or sufferance of the appointment of a receiver, trustee, or other person,
pursuant to court action or otherwise, over all, or any part of any Borrower's
property; the granting of any trust mortgage or execution of an assignment for
the benefit of the creditors of any Borrower, or the occurrence of any other
voluntary or involuntary liquidation or extension of debt agreement for any
Borrower; the failure by any Borrower to generally pay the debts of any Borrower
as they mature; adjudication of bankruptcy or insolvency relative to any
Borrower; the entry of an order for relief or similar order with respect to any
Borrower in any proceeding pursuant to The Bankruptcy Code of 1978 as amended,
Title 11 United States Code (commonly referred to as the Bankruptcy Code) or any
other federal bankruptcy law; the filing of any complaint, application, or
petition by or against any Borrower initiating any matter in which such Borrower
is or may be granted any relief from the debts of the Borrower pursuant to the
Bankruptcy Code or any other insolvency statute or procedure, PROVIDED the
Borrowers shall have forty-five (45) days in which to dismiss any such
involuntary proceeding; the calling or sufferance of a meeting of creditors of
any Borrower; the meeting by any Borrower with a formal or informal creditors'
committee; the offering by or entering into by any Borrower of any composition,
extension, or any other arrangement seeking relief from or extension of the
debts of such Borrower, or the initiation of any other judicial or non- judicial
proceeding or agreement by, against, or including any Borrower which seeks or
intends to accomplish a reorganization or arrangement with creditors.
11-9. Judgments. The entry of any judgment against any Borrower, which
together with any other judgment, aggregates in excess of $100,000.00, which
judgment is not satisfied or appealed from (with execution or similar process
stayed) within fifteen (15) days of its entry.
11-10. Restraint of Business. The entry of any court order which enjoins,
restrains or in any way prevents any Borrower from conducting all or any
material part of its business affairs in the ordinary course.
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11-11. Change in Ownership. (a) Any Change in Control and/or (b) the failure
of the Lead Borrower to own 100% of the capital stock of each of the other
Borrowers.
11-12. Casualty Loss. The occurrence of (a) any material uninsured loss,
theft, damage, destruction to or of any of the Collateral, or (b) any sale
(other than sales in the ordinary course of business) or encumbrance to or of
any of the Collateral.
11-13. Material Agreement. The occurrence of any material default or
termination under any material license, distributor, franchise or similar
agreement used or useful in the operation of the Borrowers' business, including,
without limitation, any license issued by the FDA or other applicable licensing
authority.
11-14. Termination of Existence. The termination of existence, dissolution,
winding up, or liquidation of any Borrower.
11-15. Default by Guarantor. The occurrence of any of the foregoing Events
of Default with respect to any guarantor, endorser, or surety to the Lender of
the Liabilities, or the occurrence of any of the foregoing Events of Default
with respect to any parent, subsidiary, or affiliate of any Borrower, as if such
guarantor, endorser, surety, parent, subsidiary, or affiliate were the
"Borrower" described therein.
11-16. Termination of Guaranty. The termination, or attempted termination,
of any guaranty by any guarantor of the Liabilities.
11-17. Challenge to Loan Documents.
(a) Any challenge by or on behalf of any Borrower or any guarantor of
the Liabilities to the validity of any Loan Document or the applicability or
enforceability of any Loan Document strictly in accordance with the subject Loan
Document's terms or which seeks to void, avoid, limit, or otherwise adversely
affect any security interest created by or in any Loan Document or any payment
made pursuant thereto.
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(b) Any determination by any court or any other judicial or government
authority that any material provision of any Loan Document is not enforceable in
accordance with the subject Loan Document's terms, or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
11-18. Indictment - Forfeiture. The indictment of, or institution of any
legal process or proceeding by any governmental instrumentality against, any
Borrower, under any federal, state, municipal, and other civil or criminal
statute, rule, regulation, order, or other requirement having the force of law
where the relief, penalties, or remedies sought include the forfeiture of any
material property of such Borrower and/or the imposition of any stay or other
order, the effect of which could be to restrain in any material way the conduct
by such Borrower of its business in the ordinary course.
ARTICLE 12 - RIGHTS AND REMEDIES UPON DEFAULT
- ---------------------------------------------
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter.
12-1. Rights of Enforcement. The Lender shall have all of the rights and
remedies of a secured party upon default under the UCC, in addition to which the
Lender shall have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral with or without the
taking of possession of any of the Collateral.
(b) To apply the Receivables Collateral or the proceeds of the
Collateral towards (but not necessarily in complete
satisfaction of) the Liabilities.
(c) To take possession of all or any portion of the Collateral.
(d) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such
preparation or processing as the Lender deems advisable and
with or without the taking of possession of any of the
Collateral.
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(e) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan
Documents.
12-2. Sale of Collateral. (a) Any sale or other disposition of the
Collateral may be at public or private sale upon such terms and in such manner
as the Lender deems advisable, having due regard to compliance with any statute
or regulation which might affect, limit, or apply to the Lender's disposition of
the Collateral.
(b) Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Lender shall provide the Lead Borrower (on behalf of the
Borrowers) with such notice as may be practicable under the circumstances), the
Lender shall give the Lead Borrower at least seven (7) days prior written notice
of the date, time, and place of any proposed public sale, and of the date after
which any private sale or other disposition of the Collateral may be made. The
Borrowers agree that such written notice shall satisfy all requirements for
notice to each of the Borrowers which are imposed under the UCC or other
applicable law with respect to the Lender's exercise of the Lender's rights and
remedies upon default.
(c) The Lender may purchase the Collateral, or any portion of it
at any sale held under this Article.
(d) The Lender shall apply the proceeds of any exercise of the
Lender's Rights and Remedies under this Article 12 towards the Liabilities in
such manner, and with such frequency, as the Lender determines.
12-3. Occupation of Business Location. In connection with the Lender's
exercise of the Lender's rights under this Article, the Lender may enter upon,
occupy, and use any premises owned or occupied by any Borrower, and may exclude
the Borrowers from such premises or portion thereof as may have been so entered
upon, occupied, or used by the Lender. The Lender shall not be required to
remove any of the Collateral from any such premises upon the Lender's taking
possession thereof, and may render any Collateral unusable to the Borrowers. In
no event shall the Lender be liable to the Borrowers for
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use or occupancy by the Lender of any premises pursuant to this Article, nor for
any charge (such as wages for the Borrowers' employees and utilities) incurred
in connection with the Lender's exercise of the Lender's Rights and Remedies.
12-4. Grant of Nonexclusive License. The Borrowers hereby grant to the
Lender a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, trade name, logo, or the like in which the Borrowers now or
hereafter have rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
12-5. Assembly of Collateral. The Lender may require the Borrowers to
assemble the Collateral and make it available to the Lender at the Borrowers'
sole risk and expense at a place or places which are reasonably convenient to
the Lender.
12-6. Rights and Remedies. The rights, remedies, powers, privileges, and
discretions of the Lender hereunder (herein, the "LENDER'S RIGHTS AND REMEDIES")
shall be cumulative and not exclusive of any rights or remedies which it would
otherwise have. No delay or omission by the Lender in exercising or enforcing
any of the Lender's Rights and Remedies shall operate as, or constitute, a
waiver thereof. No waiver by the Lender of any Event of Default or of any
default under any other agreement shall operate as a waiver of any other default
hereunder or under any other agreement. No single or partial exercise of any of
the Lender's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Lender and any person,
at any time, shall preclude the other or further exercise of the Lender's Rights
and Remedies. No waiver by the Lender of any of the Lender's Rights and Remedies
on any one occasion shall be deemed a waiver on any subsequent occasion, nor
shall it be deemed a continuing waiver. All of the Lender's Rights and Remedies
and all of the Lender's rights, remedies, powers, privileges, and discretions
under any other agreement or transaction are cumulative, and not alternative or
exclusive, and may be
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exercised by the Lender at such time or times and in such order of preference as
the Lender in its sole discretion may determine. The Lender's Rights and
Remedies may be exercised without resort or regard to any other source of
satisfaction of the Liabilities.
ARTICLE 13 - NOTICES.
- ---------------------
13-1. Notice Addresses. All notices, demands, and other communications made
in respect of this Agreement (other than a request for a loan or advance or
other financial accommodation under the Revolving Credit) shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
If to the Lender: BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110
Attention: Mr. James A. Hickson
Fax: 617 434-2309
With a copy to: Riemer & Braunstein, LLP
Three Center Plaza
Boston, Massachusetts 02108
Attention: David S. Berman, Esquire
Fax: 617 723-6831
If to any Borrower: DynaGen, Inc.
1000 Winter Street
Waltham, Massachusetts
Attention: Dhananjay G. Wadekar
Fax: 781 890-0188
With a copy to: Foley, Hoag & Eliot, LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: David M. Broadwin, Esquire
Fax: 617 832-7000
13-2. Notice Given. (a) Notices shall be deemed given at the sooner of when
actually received or (i) if by mail: Three (3) days following deposit in the
United States mail, postage prepaid; (ii) By overnight express delivery: the
Business Day following the day when sent; (iii) By hand: If delivered on a
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Business Day after 9:00 AM and no later than Three (3) hours prior to the close
of customary business hours of the recipient, when delivered (otherwise, at the
opening of the then next Business Day); and (iv) By Facsimile transmission: If
sent on a Business Day after 9:00 AM and no later than Three (3) hours prior to
the close of customary business hours of the recipient, one (1) hour after being
sent (otherwise, at the opening of the then next Business Day).
(b) Rejection or refusal to accept delivery and inability to
deliver because of a changed address or Facsimile Number for which no due notice
was given shall each be deemed receipt of the notice sent.
ARTICLE 14 - TERM OF AGREEMENT.
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14-1. Termination Of Revolving Credit. The Revolving Credit shall be
terminated upon the Termination Date.
14-2. Effect of Termination. Upon the Termination Date, the Borrower shall
pay the Lender the then principal balance of the Loan Account and all accrued
and unpaid interest thereon (whether or not then due). Following such payment,
all provisions of this Agreement, other than those contained in Article 3 which
place an obligation on the Lender to make any loans or advances or to provide
financial accommodations under the Revolving Credit or to issue L/Cs shall
remain in full force and effect until all Liabilities shall have been paid in
full. The release by the Lender of the security interests granted the Lender by
the Borrowers hereunder may be upon such conditions and indemnifications as the
Lender may require.
ARTICLE 15 - GENERAL.
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15-1. Protection of Collateral. The Lender shall have no duty as to the
collection or protection of the Collateral beyond the safe custody of such of
the Collateral as may come into the possession of the Lender and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto.
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15-2. Successors and Assigns. This Agreement shall be binding upon the
Borrowers and the Borrowers' representatives, successors, and assigns and shall
enure to the benefit of the Lender and the Lender's successors and assigns
PROVIDED, HOWEVER, no trustee or other fiduciary appointed with respect to the
Borrowers shall have any rights hereunder. In the event that the Lender assigns
or transfers its rights under this Agreement, the assignee shall thereupon
succeed to and become vested with all rights, powers, privileges, and duties of
the Lender hereunder and the Lender shall thereupon be discharged and relieved
from its duties and obligations hereunder.
15-3. Severability. Any determination that any provision of this Agreement
or any application thereof is invalid, illegal, or unenforceable in any respect
in any instance shall not affect the validity, legality, or enforceability of
such provision in any other instance, or the validity, legality, or
enforceability of any other provision of this Agreement.
15-4. Amendments. Course of Dealing. (a) This Agreement and the other Loan
Documents incorporate all discussions and negotiations between the Borrowers and
the Lender, either express or implied, concerning the matters included herein
and in such other instruments, any custom, usage, or course of dealings to the
contrary notwithstanding. No such discussions, negotiations, custom, usage, or
course of dealings shall limit, modify, or otherwise affect the provisions
thereof. No failure by the Lender to give notice to any Borrower of the
Borrowers' having failed to observe and comply with any warranty or covenant
included in any Loan Document shall constitute a waiver of such warranty or
covenant or the amendment of the subject Loan Document. No change made by the
Lender in the manner by which Availability is determined (any of which changes
may be made by the Lender in its discretion) shall obligate the Lender to
continue to determine Availability in that manner.
(b) The Borrowers may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the
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Lender, then by a duly authorized officer thereof). Any modification, amendment,
or waiver provided by the Lender shall be in reliance upon all representations
and warranties theretofore made to the Lender by or on behalf of the Borrowers
(and any guarantor, endorser, or surety of the Liabilities) and consequently may
be rescinded by the Lender in the event that any of such representations or
warranties was not true and complete in all material respects when given.
15-5. Power of Attorney. In connection with all powers of attorney included
in this Agreement, the Borrowers hereby grant unto the Lender full power to do
any and all things necessary or appropriate in connection with the exercise of
such powers as fully and effectually as the Borrowers might or could do, hereby
ratifying all that said attorney shall do or cause to be done by virtue of this
Agreement. No power of attorney set forth in this Agreement shall be affected by
any disability or incapacity suffered by the Borrowers and each shall survive
the same. All powers conferred upon the Lender by this Agreement, being coupled
with an interest, shall be irrevocable until this Agreement is terminated by a
written instrument executed by a duly authorized officer of the Lender.
15-6. Application of Proceeds. The proceeds of any collection, sale, or
disposition of the Collateral, or of any other payments received hereunder,
shall be applied toward the Liabilities in such order and manner as the Lender
determines in its sole discretion. The Borrowers shall remain liable to the
Lender for any deficiency remaining following such application.
15-7. Lender's Costs and Expenses. The Borrowers shall pay on demand all
Costs of Collection and all reasonable expenses of the Lender in connection with
the preparation, execution, and delivery of this Agreement and of any other Loan
Documents, whether now existing or hereafter arising, and all other reasonable
expenses which may be incurred by the Lender in preparing or amending this
Agreement and all other agreements, instruments, and documents related thereto,
or otherwise incurred with respect to the Liabilities. The Borrowers
specifically authorize the Lender to pay all such fees and expenses
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and in the Lender's discretion, to add such fees and expenses to the Loan
Account.
15-8. Copies and Facsimiles. This Agreement and all documents which relate
thereto, which have been or may be hereinafter furnished the Lender may be
reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the
regular course of business). Any facsimile which bears proof of transmission
shall be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in evidence as if the original of
such facsimile had been delivered to the party which or on whose behalf such
transmission was received.
15-9. Massachusetts Law. This Agreement and all rights and obligations
hereunder, including matters of construction, validity, and performance, shall
be governed by the laws of The Commonwealth of Massachusetts.
15-10. Consent to Jurisdiction.(a)The Borrowers agree that any legal action,
proceeding, case, or controversy against the Borrowers with respect to any Loan
Document may be brought in the Superior Court of Suffolk County Massachusetts or
in the United States District Court, District of Massachusetts, sitting in
Boston, Massachusetts, as the Lender may elect in the Lender's sole discretion.
By execution and delivery of this Agreement, each Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
(b) Each Borrower WAIVES personal service of any and all process
upon it, and irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by certified mail, postage prepaid, to the Lead Borrower at the Lead
Borrower's address for notices as specified herein, such service to become
effective five (5) Business Days after such mailing.
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(c) Each Borrower WAIVES, at the option of Lender, any objection
based on forum non conveniens and any objection to venue of any action or
proceeding instituted under any of the Loan Documents and consents to the
granting of such legal or equitable remedy as is deemed appropriate by the
Court.
(d) Nothing herein shall affect the right of the Lender to bring
legal actions or proceedings in any other competent jurisdiction.
(e) Each Borrower agrees that any action commenced by any Borrower
asserting any claim or counterclaim arising under or in connection with this
Agreement or any other Loan Document shall be brought in the Superior Court of
Suffolk County Massachusetts or in the United States District Court, District of
Massachusetts, sitting in Boston, Massachusetts, and that such Courts shall have
exclusive jurisdiction with respect to any such action.
15-11. Indemnification. Each Borrower shall jointly and severally
indemnify, defend, and hold the Lender and any employee, officer, or agent of
the Lender (each, an "INDEMNIFIED PERSON") harmless of and from any claim
brought or threatened against any Indemnified Person by any Borrower, any
guarantor or endorser of the Liabilities, or any other Person (as well as from
attorneys' reasonable fees and expenses in connection therewith) on account of
the Lender's relationship with the Borrowers or any other guarantor or endorser
of the Liabilities, including, without limitation, any liabilities, claims,
demands, expenses, or losses made against or suffered by the Lender on account
of, or arising out of, the Revolving Credit, the Lender's reliance upon loan
requests made by the Lead Borrower, or any other action taken by the Lender
hereunder or under any of the Lender's various agreements with the Lead Borrower
and/or any Borrower and/or any other person arising under the loan arrangement
contemplated herein (each, an "INDEMNIFIED CLAIM"), other than any claim as to
which a final determination is made in a judicial proceeding (in which the
Lender and any other Indemnified Person has had an opportunity to be heard),
which determination includes a specific finding that the Indemnified Person
seeking indemnification had acted in a grossly negligent manner or in actual bad
faith. Each Indemnified Claim shall be defended, compromised, settled, or
pursued by the Borrowers with counsel reasonably satisfactory to the Lender;
provided that if the Borrowers fail to so defend any Indemnified Claim, such
Indemnified Claim may be defended by the Indemnified Person with
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counsel of the Lender's selection, but at the expense of the Borrowers. No
Indemnified Claim shall be settled or compromised without the consent of the
Borrowers and the Lender, each of whose consent shall not be unreasonably
withheld. This indemnification shall survive payment of the Liabilities and/or
any termination, release, or discharge executed by the Lender in favor of the
Borrowers.
15-12. Syndication. The Lender may sell or assign all or a portion of the
Lender's rights hereunder to one or more banks or other entities either through
participations or syndications.
15-13. Rules of Construction.(a)The following rules of construction shall be
applied in the interpretation, construction, and enforcement of this Agreement
and of the other Loan Documents:
(i) Words in the singular include the plural and words in the
plural include the singular.
(ii) Headings (indicated by being underlined) and the Table of
Contents are solely for convenience of reference and do not constitute
a part of the instrument in which included and do not affect such
instrument's meaning, construction, or effect.
(iii) The words "includes" and "including" are not limiting.
(iv) The words "may not" are prohibitive and not permissive.
(v) The word "or" is not exclusive.
(vi) Terms which are defined in one section of an instrument are
used with such definition throughout the instrument in which so defined.
(vii) The symbol "$" refers to United States Dollars.
(viii) References to "herein", "hereof", and "within" are to this
entire Loan Agreement and not merely the provision in which such
reference is included.
(ix) Except as otherwise specifically provided, all references to
time are to Boston time.
(x) In the determination of any notice, grace, or other period of
time prescribed or allowed hereunder, unless otherwise provided (A) the
day of the act, event, or default from which the designated period of
time begins to run shall not be included and the last day of the period
so
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computed shall be included unless such last day is not a Business
Day, in which event the last day of the relevant period shall be the
then next Business Day and (B) the period so computed shall end at
5:00PM on the relevant Business Day.
(b) The Loan Documents shall be construed and interpreted in a harmonious
manner, provided, however, in the event of any inconsistency between the
provisions of the within Agreement and any other Loan Document, the provisions
of the within Agreement shall govern and control.
15-14. Intent. It is intended that
(a) This Agreement take effect as a sealed instrument.
(b) All reasonable costs and expenses incurred by the Lender in
connection with the Lender's relationship(s) with the Borrowers shall
be borne by the Borrowers.
(c) The Lender's consent to any action of the Borrowers which is
prohibited unless such consent is given may be given or refused by the
Lender in its sole discretion.
15-15. Right of Set-Off. Any and all deposits or other sums at any time
credited by or due to any Borrower from the Lender or from any participant with
the Lender in the Liabilities (a "PARTICIPANT") and any cash, securities,
instruments or other property of any Borrower in the possession of the Lender or
any Participant, whether for safekeeping or otherwise (regardless of the reason
the Lender or the Participant had received the same) shall at all times
constitute security for all Liabilities, and may be applied or set off against
the Liabilities at any time after the occurrence of an Event of Default, whether
or not other collateral is then available to the Lender or any Participant,
provided, however, upon the service of any trustee process attachment upon the
Lender, the Lender may set off and apply any such deposits or other sums and
property against the Liabilities whether or not an Event of Default then exists.
15-16. Maximum Interest Rate. Regardless of any provision of any Loan
Document, the Lender shall never be entitled to contract for, charge, receive,
collect, or apply as interest on any Liability, any amount in excess of the
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maximum rate imposed by applicable law. Any payment which is made which, if
treated as interest on a Liability would result in such interest's exceeding
such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Liabilities as if such excess were "Collateral."
15-17. Waivers.(a)Each Borrower (and all guarantors, endorsers, and sureties
of the Liabilities) make each of the waivers included in Subsection (b), below,
knowingly, voluntarily, and intentionally, and understands that the Lender, in
entering into the financial arrangements contemplated hereby and in providing
loans and other financial accommodations to or for the account of each Borrower
as provided herein, whether not or in the future, is relying on such waivers.
(b) EACH BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING:
(i) Except as otherwise specifically required hereby, notice of
non-payment, demand, presentment, protest and all forms of demand and
notice, both with respect to the Liabilities and the Collateral.
(ii) Except as otherwise specifically required hereby, the right to
notice and/or hearing prior to the Lender's exercising of the Lender's
rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN
WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE
LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES
OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN ANY
BORROWER OR ANY OTHER PERSON AND THE LENDER (AND THE LENDER LIKEWISE
WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR
CONTROVERSY).
(iv) The benefits or availability of any stay, stay, limitation,
hindrance, delay, or restriction (including, without limitation, any
automatic stay which otherwise might be imposed pursuant to Section 362
of the Bankruptcy Code) with respect to any action which the Lender may
or may become entitled to take hereunder.
(v) Any set-off, recoupment, or other basis on which the amount of
any Liability, as stated on the books and records of the Lender, could
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be reduced or claimed to be paid otherwise than in accordance with the
tenor of and written terms of such Liability.
(vi) Any claim to consequential, special, or punitive damages.
15-18. Receipt of Agreement. Each Borrower acknowledges receipt of a com-
pleted copy of this Agreement.
DYNAGEN, INC.
("LEAD BORROWER")
By /s/ Dhananjay G. Wadekar
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Name: Dhananjay G. Wadekar
-------------------------------
Title: Secretary
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DYNAGEN, INC.
("BORROWER")
By /s/ Dhananjay G. Wadekar
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Name: Dhananjay G. Wadekar
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Title: Secretary
-------------------------------
ABLE LABORATORIES, INC.
("BORROWER")
By /s/ Dhananjay G. Wadekar
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Name: Dhananjay G. Wadekar
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Title: Secretary
-------------------------------
SUPERIOR PHARMACEUTICAL COMPANY
("BORROWER")
By /s/ Dhananjay G. Wadekar
-------------------------------
Name: Dhananjay G. Wadekar
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Title: Secretary
-------------------------------
GENERIC DISTRIBUTORS, INC.
("BORROWER")
By /s/ Dhananjay G. Wadekar
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Name: Dhananjay G. Wadekar
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Title: Secretary
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BANKBOSTON, N.A.
("LENDER")
By
-------------------------------
Name:
-------------------------------
Title:
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EXHIBIT 23a
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement on Form S-3 of DynaGen, Inc. (the "Company") of our report dated
February 12, 1999 (except for Note 13, as to which the date is March 29, 1999),
appearing in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998, and to the reference to us under the heading "Experts" in the
prospectus which is part of this Registration Statement.
/s/ Wolf & Company, P.C.
--------------------------------
WOLF & COMPANY, P.C.
January 12, 2000
