-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BqeoTSiWG7Ra6TEZnYsxI22R++BnQB5q9p+wSDfv0tI2ToN5VVXYdE477Y6OuZWd bLKirSdXoynMl6Ab63VFgw== 0000903893-96-000785.txt : 19961001 0000903893-96-000785.hdr.sgml : 19961001 ACCESSION NUMBER: 0000903893-96-000785 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960930 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYNAGEN INC CENTRAL INDEX KEY: 0000857171 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 043029787 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11352 FILM NUMBER: 96636989 BUSINESS ADDRESS: STREET 1: 99 ERIE ST CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6174912527 MAIL ADDRESS: STREET 1: 99 ERIE ST CITY: CAMBRIDGE STATE: MA ZIP: 02139 10-K 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED JUNE 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM ___________ TO ___________ . COMMISSION FILE NUMBER 1-11352 ---------- DYNAGEN, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------- DELAWARE 04-3029787 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 99 ERIE STREET, CAMBRIDGE, MASSACHUSETTS 02139 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) ---------- (617) 491-2527 ---------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF CLASS ON WHICH REGISTERED -------------- ------------------- COMMON STOCK, $.01 PAR VALUE BOSTON STOCK EXCHANGE REDEEMABLE COMMON STOCK PURCHASE WARRANTS BOSTON STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: TITLE OF CLASS -------------- COMMON STOCK, $.01 PAR VALUE REDEEMABLE COMMON STOCK PURCHASE WARRANTS ---------- INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES[X] NO [ ] INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] As of September 23, 1996, 28,661,412 shares of the registrant's Common Stock, $.01 par value, were issued and outstanding. The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant as of September 23, 1996, based upon the closing price of such stock on the Nasdaq Stock Market's SmallCap Market ("Nasdaq") on that date ($2.00) was $50,959,824. ================================================================================ PART I ITEM 1. BUSINESS INTRODUCTION DynaGen, Inc. ("DynaGen" or the "Company") develops and markets proprietary and generic therapeutic and diagnostic products for the human health care market. In August 1996, the Company acquired the tablet business of Able Laboratories, Inc. ("Able"), a generic pharmaceutical products subsidiary of ALPHARMA USPD INC. Generic drugs are lower priced equivalents of brand-name drugs that have gone off-patent. According to industry sources, the U.S. generic pharmaceutical market approximates $8 billion in annual sales. In connection with the acquisition of Able, the Company acquired the rights to several U.S. Food and Drug Administration ("FDA") approved Abbreviated New Drug Application ("ANDA") products as well as other generic formulations. The Company intends to increase sales of its current generic product portfolio through expansion of its distribution network, by reintroducing certain products that were previously discontinued by Able's prior owner, and by developing a program to add new ANDA products. There can be no assurance that the Company will be successful in implementing this strategy or receiving the necessary regulatory approvals. Prior to the Able acquisition, DynaGen's business consisted of proprietary diagnostic products and proprietary therapeutic and diagnostic product candidates. The Company's lead therapeutic product candidate, NicErase(R)-SL, is intended as an aid in smoking cessation and to provide relief from nicotine withdrawal symptoms. Unlike currently available smoking cessation products, NicErase's active ingredient is lobeline, a non-nicotine therapeutic compound. Results of human clinical trials conducted by the Company suggest that NicErase is safe, reduces nicotine withdrawal symptoms and does not exhibit potential for addiction. The Company is currently conducting a multi-center pivotal Phase 3 clinical trial of NicErase-SL. Results from this first trial are anticipated to be available in the fourth quarter of 1996. There can be no assurance that the results of the Company's ongoing Phase 3 clinical trial of NicErase-SL will be favorable for the Company. DynaGen is also developing OrthoDyn(R), a bioresorbable bone cement system for bone and joint repair which is currently in the preclinical development stage. The Company is also conducting early stage research on bacterial extract for the treatment of infectious diseases. DynaGen has also developed proprietary diagnostic tests for certain infectious diseases including tuberculosis ("TB"). The Company is currently selling MycoDot(R), a product to detect antibodies against mycobacteria in blood or serum, through distributors primarily in Southeast Asia, Pacific Rim countries, China, India and Japan. DynaGen has received clearance under three Premarket Notification 510(k)s to the FDA to market its MycoAKT(R) diagnostic tests that identify three mycobacterial species in culture. The Company has granted exclusive U.S. manufacturing and distribution rights and semi-exclusive worldwide rights for MycoAKT to a third party. The Company has also filed a 510(k) application with the FDA seeking clearance to market its proprietary NicCheck(R) I product for detection of nicotine consumption. THERAPEUTIC PRODUCTS OVERVIEW OF SMOKING CESSATION THERAPY Until recently, all of the FDA-approved smoking cessation products required a prescription from a physician. Nicorette(R), a nicotine-containing gum currently marketed by SmithKline Beecham Consumer Health Care, was the first prescription product approved by the FDA as an aid to smoking cessation. Nicotine-containing transdermal patches and nasal sprays have also been developed and initially approved by the FDA for prescription use and marketed as such by pharmaceutical companies. Beginning in 1996 the FDA granted approval for several nicotine patch and gum products, including some of the products mentioned above, to be sold over-the-counter ("OTC"), without prescription. The FDA approval of OTC products has caused a shift in the smoking cessation marketplace from prescription to OTC use. The rationale behind currently marketed nicotine based smoking cessation products is that by gradually decreasing the concentration and daily dosage of nicotine one can overcome nicotine dependency without experiencing withdrawal problems. 1 Until December 1993, there were a variety of non-FDA approved over-the-counter smoking cessation products. Several of these products contained lobeline as their active ingredient because it was believed that lobeline could temporarily replace nicotine and help to overcome nicotine dependency and withdrawal problems. The majority of the lobeline products were taken orally assuming that a sufficient quantity of lobeline would be absorbed from the gastrointestinal ("GI") tract into the blood stream. These formulations have not been proven to be effective and they have not received FDA approval. DynaGen's research is consistent with the hypothesis that lobeline relieves nicotine withdrawal symptoms by binding to nicotine receptors in the brain without activating the addiction mechanisms. Based on the belief that a lobeline formulation which does not depend on absorption from the GI tract might be an effective tobacco substitute, DynaGen has developed alternative delivery formulations, the most promising of which is the sublingual tablet, NicErase-SL. NICERASE-SL. NicErase-SL is a sublingual tablet that is held under the tongue where it dissolves in one to three minutes. As the tablet dissolves, the lobeline enters the bloodstream directly through blood vessels under the tongue and in the mouth. NicErase-SL is designed for use by individuals who want to stop smoking. It is expected that NicErase-SL will be used in a six-week program that includes smoking cessation counseling similar to other FDA approved prescription smoking cessation products. In November, 1994, DynaGen initiated a multi-center pilot Phase 3 smoking cessation clinical trial with NicErase-SL. The primary purpose of this trial was to project the number of subjects required to demonstrate statistically significant differences between NicErase-SL and placebo treated subjects in the planned pivotal Phase 3 trials. A total of 180 subjects were enrolled, 60 at each of three locations: the Tobacco Research Center at West Virginia University, the University of Nebraska Medical Center and the Arizona Clinical Research Center. During the study, NicErase-SL sublingual tablets were self-administered daily for six weeks. One half of the subjects received NicErase-SL and the other half received placebo tablets. All subjects received brief individualized smoking cessation counseling on a weekly basis. The pilot Phase 3 trial showed encouraging results, particularly for those smokers who were considered to be more highly nicotine dependent. The quit rates for highly dependent smokers treated with NicErase-SL for six weeks were approximately double the quit rates of those who received the placebo. Other indicators of effectiveness also improved. For example, the craving for tobacco and the number of cigarettes smoked by those who did not abstain completely were reduced by NicErase-SL compared to the placebo treatment. These results warranted the conduct of more extensive testing in order to determine whether NicErase-SL would be an effective smoking cessation product. The Company thus began a multi-center pivotal Phase 3 clinical trial with NicErase-SL in March 1996. This trial consists of a total of approximately 750 subjects at two sites in the United States and one in Europe. Results from this first trial are anticipated to be available in the fourth quarter of 1996. At a minimum, a second similar trial would also be necessary before the Company could file, with the FDA, a New Drug Application to market NicErase as a prescription product. The FDA currently requires that smoking cessation products be initially marketed for prescription use with a possible switch to OTC only after a positive history of prescription use has been established and demonstrated to the FDA's satisfaction. The Company is currently evaluating its developmental and commercialization strategy for NicErase-SL in light of the shift in the smoking cessation market from prescription to OTC products. To date, the Company has not entered into any collaborative arrangements with any third party with respect to the development and commercialization of NicErase-SL. The Company's future development and commercialization activities will depend on a number of factors including the results of the Company's current pivotal Phase 3 clinical trial, the changing demands of the smoking cessation market and the Company's ability to secure a suitable marketing and development partner. There can be no assurance that the results of the current pivotal Phase 3 clinical trial will be sufficient to support further clinical development of NicErase-SL or a second pivotal phase 3 clinical trial. Even if such results are promising, there can be no assurance that such results will be repeated in the future clinical trials, or that the Company will receive the necessary regulatory approvals to commercialize NicErase-SL. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Certain Factors That May Affect Future Results." 2 OTHER THERAPEUTIC PRODUCTS The Company is developing OrthoDyn, a family of bioresorbable, biocompatible polymers derived from compounds naturally occurring in the body. Formulation of these polymers with appropriate fillers and additives yields a moldable mixture that sets within 10 to 30 minutes into a solid mass with strength characteristics similar to those of natural bone. Based upon this technology, the Company is developing an orthopedic bone cement which is intended to be used in filling cavities in bone and for securing various orthopedic fixation devices in place, such as artificial joint components and fracture repair rods, plates, pins, screws and nails. Preclinical studies have demonstrated acceptable specifications with regard to degradation time, maintenance of strength over time, and torsion and compression strength of OrthoDyn polymers. Based upon these qualities, management believes that OrthoDyn bone cement may have applications in the human orthopedic market. DynaGen intends to seek a partner to aid in further development of OrthoDyn. There can be no assurance that the Company will be able to find a suitable development partner for OrthoDyn or that continued preclinical development of OrthoDyn will be acceptable to justify continued development. The Company is conducting early stage research on bacterial extract for the treatment of infectious diseases. It is currently engaged in the characterization and partial purification of the extract prior to filing an investigational new drug application. Management is also evaluating potential clinical applications for this technology. These types of therapeutics have been studied in the past and have had mixed results. There can be no assurance that the Company can successfully develop, test and market products based on this technology. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Certain Factors That May Affect Future Results." GENERIC PRODUCTS 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 and must receive FDA approval prior to manufacture and sale. Generic drugs may be manufactured and marketed only if relevant patents (and any additional government-mandated market exclusivity periods) have expired. These drugs are typically sold under their generic chemical names at prices significantly below those of their brand-name equivalents. According to industry sources, the U.S. generic pharmaceutical market approximates $8 billion in annual sales and has been growing due to a number of factors, including the large number of major drugs coming off-patent, the growing importance and impact of managed care organizations and the increasing physician, pharmacist, and consumer acceptance of generic drugs. In connection with the acquisition of Able in August 1996, DynaGen acquired the rights to several approved ANDA products as well as other generic formulations. The Company intends to increase sales of its current generic product portfolio through expansion of its distribution network, by reintroducing certain products that were previously discontinued by Able's prior owner, and by developing a program to add new ANDA products. The following is a list of the generic products that the Company acquired in the Able acquisition:
GENERIC PRODUCT THERAPEUTIC CATEGORY BRAND NAME(1) --------------- -------------------- -------------- ANDA PRODUCTS: Clorazepate tablets (three dosages) Anxiolytic Tranxene Clorazepate capsules (three dosages) Anxiolytic Tranxene Loperamide tablets Antidiarrheal Imodium Acetaminophen suppositories (three dosages) Analgesic Tylenol suppositories Hydrocortisone acetate cream (1%) Anti-inflammatory Anusol-HC cream OTHER GENERIC FORMULATIONS: Bisacodyl tablets Laxative Dulcolax Choline magnesium trisalicylate tablets (three dosages) Anti-inflammatory Trilisate Methenamine Mandelate tablets (two dosages) Urinary Antibacterial Mandelamine Phenazopyridine HCL tablets (two dosages) Urinary Tract Analgesic Pyridium Salsalate tablets (two dosages) Anti-inflammatory Disalcid - ---------- (1) All brand names are registered trademarks of their respective manufacturers.
3 DIAGNOSTIC PRODUCTS The health care industry is shifting to a managed care approach which integrates prevention, diagnostic, therapeutic and compliance technologies into a panel of products for specific disease management. In light of this structural shift, the Company is developing diagnostic products which may help in the prevention and diagnosis of disease and in the determination of compliance with smoking cessation programs. SMOKING CESSATION AND RELATED DIAGNOSTIC PRODUCTS NICCHECK. NicCheck is a simple colorometric test for the detection of nicotine and its metabolites in urine. The test distinguishes between smokers and nonsmokers with 97% accuracy and is also able to distinguish between high and low consumers of nicotine. NicCheck can be used both as a companion product for NicErase-SL or independently for clinical evaluation. Smokers who are trying to quit may become more motivated by visual verification of their smoking behavior observed in the changing color intensity of NicCheck I. NicCheck may also prove to be a cost-effective means for insurance companies to employ risk assessment/risk management strategies. The Company has conducted human clinical trials on this product and has filed a 510(k) application with the FDA seeking clearance to market its NicCheck I test. EMPHYDYN(TM). The Company is developing EmphyDyn, a diagnostic test for emphysema that uses immunoassay technology to detect a breakdown of the elastin lung protein which signals impending lung function impairment. The Company's proposed EmphyDyn test, which is in the preclinical stage of development, is intended to be used by physicians to quantitatively assess emphysematous changes in the lungs at an early stage, thus enabling preventative measures. TUBERCULOSIS DIAGNOSTIC PRODUCTS Tuberculosis ("TB") is a chronic, infectious disease which afflicts both humans and animals. Although the disease is generally considered curable, particularly when diagnosed in its early stages, large numbers of TB cases occur in the world population. Diagnostic methods used for the detection of active TB include microscopic examinations and culturing of biological fluid samples such as sputum or bronchoalveolar lavage. Microscopic examination has poor sensitivity and it can be three to eight weeks before growth occurs in culture. Faster growth of the mycobacterium by culture methods that take seven to fourteen days can be achieved, but these procedures are laborious, costly and also require sophisticated instrumentation to read results. The Company's TB diagnostic test kits are designed to facilitate a more accurate diagnosis of TB and complement other TB diagnostics currently in use. MYCODOT. The Company's MycoDot test uses antigen-coated plastic combs to detect antibodies against mycobacteria in blood or serum. The 20-minute test is easy to use and yields a color change if the specific antibodies are present in the sample, indicating that the individual may have a case of active tuberculosis. Through its arrangements with distributors, the Company has established distribution channels throughout Southeast Asia and the Pacific Rim countries. The Company has also recently entered into license or distribution agreements which include China, India and Japan. These areas were targeted by the Company because of their high incidence of TB. The Company realized MycoDot product sales of approximately $201,000 during each of its first two years of commercialization. The Company is seeking to expand MycoDot distribution to several other countries around the world. MYCOAKT. The Company has developed tests for the identification of M. avium complex, M. tuberculosis complex and M. kansasii isolates in culture. MycoAKT is used for the identification of these mycobacterial species grown in culture from a biological sample. Determining the type of mycobacteria is important due to the increasing frequency of non-tuberculosis mycobacterial diseases associated with AIDS. The Company received FDA clearance under a 510(k) application to market each of these tests and has licensed exclusive U.S. manufacturing and distribution rights to a distributor. Semi-exclusive rights have also been licensed for the rest of the world. 4 SALES AND MARKETING The Company markets its diagnostic products under its own name primarily through distributors. Its generic therapeutic products are sold under its own "Able Laboratories" name and through private label arrangements. The Company's generic products are sold to drug wholesalers, manufacturer's representatives, distributors and by direct sales efforts to retail chains and other pharmaceutical companies. The Company has relatively little experience in sales, marketing and distribution. There can be no assurance that the Company can successfully implement its sales and marketing strategy or that it can successfully market or sell any of its products or proposed products. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Certain Factors That May Affect Future Results." MAJOR CUSTOMERS AND SALES BY GEOGRAPHIC AREA For the fiscal year ended June 30, 1996, approximately 79% of total revenues were derived from three major customers: Bristol-Myers Products ("BMP") (45%), Hainan OSROC Bio-Tech Co. Ltd. ("OSROC") (23%) and Remel LP ("Remel") (11%). For the fiscal year ended June 30, 1995, approximately 77% of total revenues were derived from two major customers: BMP (50%) and Genelabs Diagnostics Pte LTD ("Genelabs") (27%). There is no assurance that the revenues from OSROC, Remel and Genelabs will recur. The revenue from BMP represents the recognition over two years of a one-time payment of $500,000 for an option regarding the Company's smoking cessation technology. BMP informed the Company in July 1995 that it decided not to exercise its option to license the technology. The loss of any key customer and the inability of the Company to replace revenues provided by a key customer could have a material adverse effect on the Company's business, financial condition and results of operations. Information with respect to product sales by geographic area is presented in Note 9 of "Notes to Financial Statements." MANUFACTURING AND SUPPLIERS DynaGen's generic therapeutic products are manufactured at its Able Laboratories facility in South Plainfield, New Jersey. Management believes that sufficient quantities of the principal raw materials and components of its generic products are available at competitive prices from a limited number of suppliers in the United States and abroad. If new materials from a specified supplier were to become unavailable, the Company would be required to file a supplement to its ANDA and revalidate the manufacturing process using the new supplier's materials. If unexpected delays in obtaining new materials do occur, it could result in the loss of revenues and have a material adverse effect on the Company's business, financial condition and results of operations. The Company's strategy is to license its diagnostic products for manufacture and distribution by third parties. The Company has entered into license agreements for the manufacture and distribution of its MycoAKT and MycoDot products. MycoDot is produced by a single licensed manufacturer in India. The Company's dependence upon third parties for the manufacture and distribution of its diagnostic products could have a material adverse effect on its ability to deliver its products on a timely basis. Clinical supplies of the Company's proprietary NicErase-SL product candidate are manufactured by a third-party contract manufacturer. The Company's Cambridge, Massachusetts and South Plainfield, New Jersey facilities are registered with the FDA and subject to current Good Manufacturing Practices ("GMP") as prescribed by the FDA. 5 COMPETITION The Company competes with other generic manufacturers, specialized biotechnology companies and major pharmaceutical companies. Many of these competitors possess substantially greater financial and other resources, such as expertise in clinical trials, FDA submissions and marketing, that are needed to commercialize a pharmaceutical product. In the generic market, the Company competes with off-patent drug manufacturers, brand-name pharmaceutical companies that manufacture off-patent drugs, the original manufacturers of brand-name drugs and manufacturers of new drugs that may be used for the same indications as the Company's products. The principal competitive factors in the generic pharmaceutical market are the ability to be among the first to introduce products after a patent expires, price, quality, methods of distribution, reputation, breadth of product line and customer service, including the maintenance of inventories for timely delivery. Approvals for new products may have an effect on a company's entire product line since orders for new products are frequently accompanied by, or bring about, orders for other products. Management believes that price is a significant competitive factor, particularly as the number of off-patent entrants offering a particular product increases. As competition from other manufacturers intensifies, selling prices typically decline. In the field of nicotine addiction, the NicErase-SL product candidate will compete with both prescription and OTC products. In particular, Management believes that the principal drug competition for its proposed NicErase product is a nicotine chewing gum and the nicotine patch which several pharmaceutical companies, such as SmithKline Beecham, Hoechst Marion Roussel, McNeil Consumer Products Co. and Basel Pharmaceuticals (Ciba-Geigy) have developed and are marketing in the United States and elsewhere. Competition has been increasing due to the recent FDA approval of several nicotine patch and gum products to be sold OTC, without prescription (see "Overview of Smoking Cessation Therapy"). These FDA approvals have caused a shift in the smoking cessation marketplace from prescription to OTC use. Other programs that emphasize behavioral modification approaches, such as hypnosis, will create additional competition in the smoking cessation market. There can be no assurance that the Company's NicErase-SL product candidate will receive the necessary regulatory approvals and even if such approvals are obtained that such product will be commercially successful. OrthoDyn, the Company's orthopedic product candidate, will compete with products from a number of much larger companies, including Johnson & Johnson Co., U.S. Surgical Corp. and Bristol-Myers Squibb Co. There can be no assurance that the Company's OrthoDyn product candidate will receive the necessary regulatory approvals and even if such approvals are obtained that such product will be commercially successful. Management believes that the Company's current and proposed diagnostic products will compete on the basis of price, performance and technological features such as speed of detection, absence of radioactive substance, accuracy and reliability. Management believes that Gen-Probe, Inc. and Becton-Dickinson, among others, are its immediate competitors and that other companies may introduce competing products. There can be no assurance that the Company will be able to successfully market any of its diagnostic products. GOVERNMENT REGULATION The Company's proposed therapeutic and diagnostic products will be subject to significant government regulation in the United States and other countries. In order to conduct clinical tests, produce and market products for human diagnostic and therapeutic use, the Company must comply with mandatory procedures and safety standards established by the FDA and comparable state and foreign regulatory agencies. Typically, such standards require that products be approved by the FDA as safe and effective for their intended use prior to being marketed for human applications. The FDA regulates the conduct of clinical studies as well as the introduction, manufacturing, labeling, recordkeeping and advertising of drugs and medical devices in the United States. The FDA has the power to seize adulterated or misbranded products, require removal of products from the market, enjoin further manufacture or sale, impose civil penalties and criminal sanctions and publicize relevant facts. 6 There are two principal methods by which FDA authorization may be obtained to market medical device products, such as the Company's diagnostic test kits. One method is to seek FDA clearance through a premarket notification filing under Section 510(k) of the Federal Food, Drug, and Cosmetic Act. Applicants under the 510(k) procedure must prove that the device for which marketing clearance is sought is substantially equivalent to a device on the market prior to the Medical Device Amendments of 1976 or a device marketed thereafter pursuant to the 510(k) procedure. The review period for a 510(k) submission is generally shorter than that of a premarket approval ("PMA") procedure, however, it cannot be estimated with any degree of certainty. If the 510(k) procedure is not applicable, a PMA must be obtained from the FDA. Under the PMA procedure, the applicant must conduct substantial clinical testing that is required to determine the safety, effectiveness and potential hazards of the product. Clinical testing requires prior review of the study protocol by an institutional review board ("IRB") and patients informed consent, and may require submission of an investigational device exemption application to the FDA (for significant risk devices). Prior to human testing, animal testing may be required to determine the safety of the product. The review period under a PMA application is generally longer than review of a 510(k) and it may include review of the application by an outside advisory committee of experts in the field. In addition, the preparation of a PMA application is significantly more complex, expensive and time consuming than the 510(k) procedure and no assurance can be given that the FDA will grant approval for the sale of the Company's products for routine clinical applications or that the length of time the approval process will require will not be extensive. FDA approval of a new pharmaceutical or biological product for human use is a multistep process. Generally, preclinical animal testing first must be conducted to establish the safety and potential efficacy of the experimental product for treatment of a given disease or condition. Once the product has been found to be reasonably safe in animals, suggesting that human testing would be appropriate, an investigational new drug ("IND") application is submitted to the FDA. FDA acceptance of the IND allows a company to initiate clinical testing on human subjects. The initial phase of clinical testing (Phase 1) is conducted to evaluate the safety and, if possible, to gain early evidence of effectiveness of the experimental product in humans. If acceptable product safety is demonstrated, then Phase 2 trials are initiated. The Phase 2 trials involve studies in a small sample of the actual intended patient population to assess the efficacy of the drug for a specific application, to determine dose tolerance and the optimal dose range and to gather additional information relating to safety and potential adverse side effects. Phase 2 studies are also utilized to evaluate combinations of products for therapeutic activity. Once an investigational drug is found to have some efficacy and an acceptable safety profile in the targeted patient population, Phase 3 trials may be initiated. Phase 3 trials are expanded controlled trials that are intended to gather additional information about safety and effectiveness in order to evaluate the overall risk-benefit relationship of the experimental product and to provide an adequate basis for product labeling. These trials also may compare the safety and activity of the experimental product with currently available products. It is not possible to estimate the time in which Phase 1, 2 and 3 studies will be completed with respect to a given product, although the time period can be as long as several years. Upon completion of clinical testing, which demonstrates that the product is safe and effective for a specific indication, a New Drug Application ("NDA") or a Product License Application ("PLA") for a biological product may be submitted to the FDA. This application includes details of the manufacturing procedures, testing processes, preclinical studies and clinical trials. FDA first determines whether to accept the application for filing. If it does, FDA's review commences; if it does not, the Company may need to obtain additional data before resubmitting the application. FDA approval of the application is required before the applicant may market the new product. In addition, the FDA may impose conditions on the approval, such as post-marketing testing and surveillance programs to monitor a product's safety and effectiveness. An NDA must be submitted to the FDA for new drugs that have not been previously approved by the FDA and for new combinations of, and new indications and new delivery methods for, previously approved drugs. In the case of a new formulation of a drug that has been previously approved by the 7 FDA which is identical in active ingredient(s), dosage form, strength, route of administration, and conditions of use, an abbreviated approval process known as an ANDA (Abbreviated New Drug Application) is available. In general, for an ANDA to be approved, the drug must be shown to be bioequivalent to the previously approved drug and the manufacturing processes will be reviewed by FDA. The NDA and ANDA approval process generally takes a number of years and involves the expenditure of substantial resources. The requirements applicable to the ANDA procedure for obtaining FDA approval for generic forms of brand-name drugs which are off-patent or whose market exclusivity has expired were enacted by the Waxman-Hatch Act of 1984. This act also provides market exclusivity provisions for brand-name drugs which could preclude the submission or delay the approval of a competing ANDA. One such provision allows a five-year market exclusivity period for NDAs involving new chemical compounds and a three-year market exclusivity period for new drug applications (including different dosage forms) containing data from new clinical investigations essential to the approval of the application. Both patented and non-patented drug products are subject to these market exclusivity provisions. Another provision of law may extend patents for up to five years as compensation for reduction of the effective life of the patent as a result of time spent for clinical studies and by FDA reviewing a drug application. The Orphan Drug Act also has market exclusivity provisions of seven years for the first approved drug for a rare disease or condition. A grant of exclusivity under this act can preclude the approval of both NDAs and ANDAs for the orphan indication. Penalties for wrongdoing in connection with the development or submission of an ANDA were established by the Generic Drug Enforcement Act of 1992, authorizing FDA to permanently or temporarily bar companies or individuals from submitting or assisting in the submission of an ANDA. They may also temporarily deny approval and suspend applications to market generic drugs. FDA may also suspend the distribution of all drugs approved or developed in connection with certain wrongful conduct and also has authority to withdraw approval of an ANDA under certain circumstances and to seek civil penalties. The FDA can also significantly delay the approval of a pending NDA, ANDA, 510(k) or PMA under its "Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities Policy." Manufacturers of drugs and devices must also comply with the FDA's GMP standards or risk sanctions such as the suspension of manufacturing or the seizure of drug products and the FDA's refusal to approve additional applications. Reimbursement legislation such as Medicaid, Medicare, Veterans Administration and other programs govern reimbursement levels. All pharmaceutical manufacturers rebate to individual states a percentage of their revenues arising from Medicaid-reimbursed drug sales. Generic drug manufacturers currently rebate 11% of average net sales price for products marketed under ANDAs. NDA manufacturers are required to rebate the greater of 15.2% of average net sales price or, the difference between average net sales price and the lowest net sales price during a specified period. The Company believes that the federal and/or state governments may continue to enact measures in the future aimed at reducing the cost of drugs and devices to the public. The Company cannot predict the nature of such measures or their impact on the Company's profitability. In addition, if the Company elects to manufacture its drugs, devices or biological products itself, it will be necessary to meet mandated FDA manufacturing requirements by applying for appropriate FDA establishment registration such as an Establishment License Application for biological products, Drug Establishment Registration for its drug products and a Device Establishment Registration for devices. There can be no assurance that the appropriate approvals from the FDA will be granted as to any of the Company's proposed products or processes, that the process to obtain such approvals will not be excessively expensive or lengthy, or that the Company will have sufficient funds to pursue such approvals. The failure to receive the requisite approvals for the Company's products or processes, when and if developed, or significant delays in obtaining such approvals, would prevent the Company from commercializing its products as anticipated and would have a materially adverse effect on the business, financial condition and results of operations of the Company. 8 PRODUCT LIABILITY AND INSURANCE COVERAGE The Company presently maintains product liability insurance in the amount of $2,000,000 covering products manufactured at its Able Laboratories subsidiary. The Company does not presently maintain product liability insurance on any of its other products or proposed products. Although, the Company intends to obtain product liability insurance prior to the commercialization of certain products which are not presently insured, there can be no assurance that the Company will obtain such insurance at favorable rates or, even if obtained, that any insurance will be adequate to cover potential liabilities. In the event of a successful suit against the Company, insufficiency of insurance coverage could have a materially adverse impact on the Company's operations and financial condition. Furthermore, the costs of defending or settling a product liability claim and any attendant negative publicity may have a materially adverse impact on the Company, even if the Company ultimately prevails. Furthermore, certain food and drug retailers require minimum product liability insurance coverage as a precondition to purchasing or accepting products for commercial distribution. Failure to satisfy these insurance requirements could impede the Company's ability to achieve broad commercial distribution of its proposed products, which could have a materially adverse effect upon the business and financial condition of the Company. RESEARCH AND DEVELOPMENT For the fiscal years ended June 30, 1996, 1995 and 1994, the Company expended $3,118,145, $1,718,006 and $2,183,849, respectively, on research and development activities. PATENTS AND PROPRIETARY TECHNOLOGY As part of its initial organization, the Company acquired several patents related to the polymer technologies. In addition, the Company prepared and filed several U.S. patent applications for processes and products relating to its controlled release delivery systems, smoking cessation technology, nicotine detection product, immunological tests for the diagnosis of mycobacterial disease, and other related technologies. No assurance can be given that existing patent applications will be granted or that any patents, if issued, will provide the Company with adequate protection relating to the covered products, technology or processes. To date, the Company has received three U.S. patents related to its NicErase smoking cessation technology covering: (i) the transdermal delivery system for the administration of lobeline as an aid to smoking cessation, (ii) the controlled release delivery system, and (iii) sublingual tablet formulations. Competitors may have filed applications for, or may have been issued patents or may obtain additional patents and proprietary rights relating to, products or processes competitive with those of the Company. Accordingly, there can be no assurance that the Company's patent applications will result in patents being issued or that, if issued, the patents will afford protection against competitors with similar technology; nor can there be any assurance that any patents issued to the Company will not be infringed or circumvented by others or that others will not obtain patents that the Company would need to license or circumvent. There can be no assurance that licenses that might be required for the Company's processes or products would be available on reasonable terms, if at all. In addition, there can be no assurance that the Company's patents, if issued, would be held valid by a court. The manufacture and sale of certain products developed by the Company will involve the use of processes, products or information, the rights to certain of which are owned by others. Although the Company has obtained licenses with regard to the use of certain of such processes, products and information, there can be no assurance that such licenses will not be terminated or expire during critical periods, that the Company will be able to obtain licenses for other rights which may be important to it, or, if obtained, that such licenses will be obtained on commercially reasonable terms. If the Company is unable to obtain such licenses, the Company may have to develop alternatives to avoid infringing patents of others, potentially causing increased costs and delays in product development and introduction, or precluding the Company from developing, manufacturing or selling its proposed products. Additionally, there can be no assurance that the patents underlying any licenses will be valid 9 and enforceable. To the extent any products developed by the Company are based on licensed technology, royalty payments on the licenses will reduce the Company's gross profit from such product sales and may render the sales of such products uneconomical. MycoDot(R), NicErase(R), MycoAKT(R), MycoDyn Uritec(R), NicCheck(R) and OrthoDyn(R) are registered trademarks of DynaGen, Inc. EmphyDyn(tm) is a trademark of DynaGen, Inc. EMPLOYEES As of September 27, 1996, the Company and its subsidiary had 63 full-time employees, of whom 15 were employed in general and administrative activities and 48 were employed in research and development and manufacturing of diagnostic and therapeutic products. Eight of the Company's employees hold doctoral degrees including one who holds a Doctorate in Medicine (M.D.). None of the Company's employees are represented by a union. The Company believes its relationship with its employees is good. ITEM 2. PROPERTIES The Company maintains its principal executive offices and laboratory facilities at 99 Erie Street in Cambridge, Massachusetts. The premises, which consist of approximately 27,000 square feet of space, are leased from an unaffiliated party, for a term expiring on September 30, 1997. The Able Laboratories subsidiary is located at a 46,000 square foot leased tablet and suppository manufacturing facility in South Plainfield, New Jersey. The premises are leased from an unaffiliated party for a term expiring on March 31, 2000. The Company believes that its present facilities are adequate to meet its current needs. If new or additional space is required, the Company believes that adequate facilities are available at competitive prices in the Boston, Massachusetts and South Plainfield, New Jersey metropolitan areas. ITEM 3. LEGAL PROCEEDINGS The Company is involved in certain legal proceedings incidental to its normal business activities. While the outcome of any such proceedings cannot be accurately predicted, the Company does not believe the ultimate resolution of any existing matters should have a material adverse effect on its financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, whether through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended June 30, 1996. 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock and Redeemable Common Stock Purchase Warrants ("Public Warrants") are traded principally on the Nasdaq SmallCap Market ("Nasdaq") under the symbols "DYGN" and "DYGNW," respectively, and on the Boston Stock Exchange under the symbols "DYG" and "DYGW," respectively. The Company's Class A Redeemable Common Stock Purchase Warrants ("Class A Public Warrants") traded principally on Nasdaq under the symbol "DYGNZ" and on the Boston Stock Exchange under the symbol "DYGZ" until they were redeemed on December 14, 1995. The following table sets forth, for the periods indicated, the range of quarterly high and low sale prices as reported on Nasdaq for the Company's Common Stock, Public Warrants and Class A Public Warrants.
CLASS A COMMON STOCK PUBLIC WARRANTS PUBLIC WARRANTS(1) ------------ --------------- ------------------ HIGH LOW HIGH LOW HIGH LOW ---- --- ---- --- ---- --- FISCAL 1995 - ----------- July 1 to September 30, 1994 $1.44 $ .53 $ .44 $ .13 $ .56 $ .13 October 1 to December 31, 1994 2.75 1.19 .75 .34 1.69 .47 January 1 to March 31, 1995 3.13 1.63 1.38 .38 2.25 .88 April 1 to June 30, 1995 4.63 2.13 2.63 .75 3.81 1.25 FISCAL 1996 - ----------- July 1 to September 30, 1995 6.55 1.63 5.00 .50 5.19 1.00 October 1 to December 31, 1995 3.88 1.88 2.81 1.00 2.81 .56 January 1 to March 31, 1996 3.66 2.19 2.44 1.13 -- -- April 1 to June 30, 1996 3.19 2.13 2.50 1.13 -- -- - ---------- (1) Redeemed on December 14, 1995.
On September 23, 1996, the last reported sale prices of the Company's Common Stock and Public Warrants as reported on Nasdaq were $2.00 and $1.00, respectively. As of September 23, 1996, there were approximately 753 holders of record of the Company's Common Stock. As of such date, the Company estimates that there are approximately 12,000 beneficial holders of the Company's Common Stock. The Company has not declared or paid any cash dividends since its inception and does not anticipate paying any cash dividends to its stockholders in the foreseeable future. The Company currently intends to retain earnings, if any, to fund the development and future growth of its business. 11 ITEM 6. SELECTED FINANCIAL DATA The selected financial data set forth below has been derived from the audited financial statements of the Company. This information should be read in conjunction with the financial statements and notes thereto set forth elsewhere herein.
YEARS ENDED JUNE 30, -------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- STATEMENT OF OPERATIONS DATA: Revenues $ 555,745 $ 497,553 $ 437,005 $ 883,910 $ 192,332 Costs and Expenses 5,899,650 3,836,295 4,264,141 4,388,575 2,837,862 Loss From Continuing Operations (5,097,419) (3,042,383) (3,645,804) (3,405,387) (2,660,040) Loss From Discontinued Opera- tions - - (14,945) (48,095) (40,984) Net Loss (5,097,419) (3,042,383) (3,660,749) (3,453,482) (2,701,024) Loss Per Share: From Continuing Operations (.21) (.14) (.22) (.26) (.23) From Discontinued Operations - - - - (.01) Net Loss (.21) (.14) (.22) (.26) (.24) Weighted Average Number of Shares Outstanding 24,433,949 21,179,703 16,517,117 13,070,565 11,471,849
AT JUNE 30, ----------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- BALANCE SHEET DATA: Total Assets $11,576,666 $5,114,021 $7,834,706 $5,602,289 $ 1,942,367 Convertible Note Payable 2,000,000 -- -- -- -- Total Liabilities 2,733,032 587,207 420,964 441,171 604,238 Working Capital 10,203,693 4,102,747 6,967,894 4,584,747 739,465 Stockholders' Equity 8,843,634 4,526,814 7,413,742 5,161,118 1,338,129
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is primarily engaged in the development and marketing of therapeutic and diagnostic products for the human health care market and recently entered the generic drug business in August 1996, through its acquisition of Able. The Company began to realize revenues from the sale of recently developed products, primarily MycoDot, during fiscal 1995. Management anticipates that revenues from product sales will not be sufficient to fund its current operations or produce an operating profit until such time as the Company is able to establish acceptance of its products in their respective markets and expand its distribution channels. The Company has received technology license fees and royalties related to certain of its therapeutic and diagnostic products. However, based on the terms of the agreements presently in place, these fees and royalties are not expected to recur. The Company has financed its operations primarily through the proceeds from its public and private stock offerings, a convertible note and limited revenues from product sales and technology license fees and royalties. The Company has incurred losses since inception and expects to incur additional losses until such time as it is able to successfully develop, manufacture, and sell or license its existing and proposed products and technologies. 12 RESULTS OF OPERATIONS YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995 Revenues Revenues for the year ended June 30, 1996 ("Fiscal 1996") were $556,000 versus $498,000 for the year ended June 30, 1995 ("Fiscal 1995"). This increase of $58,000 is a result of an increase in license fees of $85,000 offset by a $27,000 decrease in product sales. The increase in license fee revenue is attributable to one-time license fees received under distribution arrangements for the Company's MycoAKT and MycoDot products. MycoDot and MycoDyn Uritec product sales remained consistent between Fiscal 1996 and Fiscal 1995. The decrease in total product sales resulted from lower shipments of other products in Fiscal 1996. The Company's product sales are summarized by geographic area and by product in Note 9 to the financial statements. Cost of Sales Cost of product sales was 44% of net product sales in Fiscal 1996 compared to 54% in Fiscal 1995. This decrease in the cost of sales percentage is primarily attributable to a reallocation of certain manufacturing staff to product marketing and support roles. Research and Development Expenses Research and development expenses were $3,118,000 for Fiscal 1996 versus $1,718,000 for Fiscal 1995, an increase of $1,400,000. This increase is primarily due to approximately $1,200,000 in additional therapeutic product development costs and $285,000 in compensation expense resulting from stock grants. The increase in therapeutic development is mainly attributable to the initiation of the first of two planned pivotal Phase 3 clinical trials for the Company's NicErase-SL smoking cessation product. The increase in research and development expenses was partially offset by a decrease in diagnostic product development costs of $74,000. The Company has limited diagnostic product development primarily to NicCheck, a test to detect the presence of nicotine. Selling, General and Administrative Expenses Selling, general and administrative expenses for Fiscal 1996 were $2,685,000 versus $1,984,000 for Fiscal 1995, an increase of $701,000. Selling, general and administrative expenses increased in the following areas: staffing - $355,000, investor relations - $165,000, consulting - $111,000 and legal - $62,000. The increase in investor relations expenses is attributable to a new program designed to inform investors on corporate developments and strategy. Legal expenses increased primarily for assistance with certain licensing arrangements, regulatory issues, stock grants and options. The increase in staffing expenses is primarily due to the award of stock grants and options. Consulting expenses relate to assistance provided towards developing a strategy for business alliances for certain Company products. Other Income (Expense) The increase in investment income is primarily due to greater funds available for investment during Fiscal 1996. The increases in interest expense and debt financing cost amortization are attributable to the $2,000,000 convertible note payable issued in 1996. Income Taxes There were no provisions for income taxes for Fiscal 1996 and Fiscal 1995 due to operating losses incurred by the Company and valuation reserves applied against deferred tax assets. As of June 30, 1996, for Federal and state income tax reporting purposes, the Company had net operating loss 13 carryforwards of approximately $18,950,000 and $17,370,000 respectively. In addition, the Company had Federal and state research tax credit carryforwards of approximately $583,000 and $113,000, respectively, available to reduce future tax liabilities. YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994 Revenues Revenues for Fiscal 1995 were $498,000 versus $437,000 for the year ended June 30, 1994 ("Fiscal 1994"). This increase of $61,000, or 14%, is a result of an increase in diagnostic product sales of $248,000 offset by a decrease in contract service revenue of $138,000 and a decrease in license fees and royalties of $49,000. Product sales were realized primarily from sales of MycoDot, a tuberculosis antibody detection product, to a distributor in Asia. The Company also recognized fee revenue of $250,000 from Bristol-Myers Products ("BMP"). The Company granted BMP the right to evaluate its smoking cessation technology for which the Company received a $500,000 payment, of which $250,000 was deferred as revenue until Fiscal 1996. In July 1995, BMP informed the Company that it decided not to exercise its option to license the technology as BMP's strategic interest was in developing an over-the-counter smoking cessation product. The Company's NicErase-SL smoking cessation product is being developed for prescription use. In Fiscal 1994, royalties were attributable to a one-time payment under an agreement to license certain tuberculosis diagnostic technology. Contract service revenues for Fiscal 1994 related to the Company's development of a vaccine delivery system under a U.S. Army contract completed in Fiscal 1994. The Company is no longer performing any contract development work. Cost of Sales Cost of product sales for Fiscal 1995 was 54% of net product sales. Research and Development Expenses Research and development expenses were $1,718,000 for Fiscal 1995 versus $2,184,000 for Fiscal 1994, a decrease of $466,000 or 21%. In Fiscal 1995, the Company expended $1,476,000 on therapeutic product development and $242,000 towards diagnostic product development, compared to $1,500,000 and $684,000, respectively, in Fiscal 1994. This is reflective of the Company's strategy whereby resources were directed towards NicErase-SL development with limited expenditures towards other therapeutic and diagnostic product development. During Fiscal 1995, therapeutic product development focused primarily on NicErase-SL, as the Company completed a multi-center pilot Phase 3 clinical trial. Diagnostic product development included limited development efforts for the Company's NicCheck and MycoAKT products. In March 1995, the Company received clearance from the FDA to market the MycoAKT products and is currently seeking and evaluating strategic alliances with third parties. MycoAKT diagnostic test kits are used to identify three mycobacterial species. The Company continued its manufacturing development scale-up and regulatory approval efforts with respect to NicCheck, a nicotine detection product. Selling, General, and Administrative Expenses Selling, general and administrative expenses for Fiscal 1995 were $1,984,000 versus $1,997,000 for Fiscal 1994, a decrease of $13,000. Comparing Fiscal 1995 to Fiscal 1994, savings realized from decreases in salaries and related benefits, public relations expenditures, use of outside business consultants and travel expenses were offset by increases in product marketing and support costs and business insurance. Product marketing and support efforts focused primarily on the implementation of distribution arrangements (including sales and marketing support in connection with such distribution arrangements) for the Company's tuberculosis related diagnostic products and business development efforts for NicCheck. 14 Other Income (Expense) Investment income increased by $113,000 from $183,000 to $296,000 when comparing Fiscal 1994 to Fiscal 1995. The Company had greater funds available for investment during Fiscal 1995 as a result of the Company's March 1994 public offering. Income Taxes There were no provisions for income taxes for Fiscal 1995 and 1994 due to operating losses incurred by the Company. Discontinued Operations In May 1994, the Company sold certain assets of its contract research and development business that related to the Company's fluid systems consulting services ("FSD"). The Company sold accounts receivable, work in process and certain furniture and equipment for $165,000, and assigned to the buyer all of the outstanding consulting projects. In addition, the Company entered into a sub-lease agreement whereby the buyer occupies the space used by the FSD business. This transaction resulted in a loss on disposal of $13,000. In management's opinion, these services did not fit the strategic direction of the Company's core therapeutic and diagnostic business. Moreover, these services were not expected to be a significant source of revenues, profit or cash flow to the Company in the future. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1996, the Company had working capital of $10,204,000 versus working capital of $4,103,000 at June 30, 1995. Cash and investment securities were $10,464,000 at June 30, 1996 as compared to $4,466,000 at June 30, 1995. The increases in working capital, cash and investment securities are primarily the result of $3,892,000 raised from the exercise of the Company's public and underwriters' warrants and $6,578,000 in net proceeds from private placements of common stock, a convertible note and convertible preferred stock. During Fiscal 1996, $4,441,000 was utilized in the Company's research and development efforts and for other operating activities. As discussed in Note 12 to the financial statements, in August 1996 the Company acquired certain assets of Able, a generic pharmaceutical products subsidiary of ALPHARMA USPD INC., for $550,000. Able manufactures and markets prescription and over-the-counter pharmaceuticals from a 46,000 square foot leased manufacturing facility in South Plainfield, New Jersey. DynaGen obtained the rights to several approved ANDA products through this purchase. DynaGen plans to increase sales of its generic product portfolio by expanding Able's distribution network, by reintroducing discontinued products and by developing new ANDA products. The acquisition is expected to increase revenues, costs and expenses, capital expenditures and the net cash used for operating activities during the foreseeable future. DynaGen intends to fund Able's operations until it becomes self-supporting. There can be no assurance that the Company will be successful in assimilating this or any future acquisition or that Able will generate sufficient revenues to become self-supporting. Management anticipates that the available working capital will be sufficient to fund the current level of operations, including the Able business, through September 1997. The Company has realized limited revenues from license fees and the sale of its diagnostic products. Its future prospects and revenue potential from product sales cannot be determined with any certainty at this time. The Company continues to explore additional sources of capital in order to fund the growth of its generic drug business and its product development efforts. There can be no assurance that the Company will be able to secure additional financing or that financing will be available on favorable terms. If the Company is unable to obtain such additional financing, the Company's ability to maintain its current level of operations could be materially and adversely affected and the Company may be required to reduce or eliminate certain expenditures, including its research and development activity with respect to certain proposed products. 15 ENVIRONMENTAL LIABILITY The Company has no known material environmental violations or assessments. RECENT ACCOUNTING PRONOUNCEMENTS The Company intends to adopt Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and SFAS No. 123, "Accounting for Stock-Based Compensation" in the year ended June 30, 1997. As discussed in Note 1 to the financial statements, the adoption of SFAS No. 121 is not expected to have a material effect on the Company's financial position, results of operations and cash flows. The Company is currently evaluating the impact of the adoption of SFAS No. 123 as it relates to stock-based compensation granted to non-employees. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS The Company does not provide forecasts of its future financial performance. However, from time to time, information provided by the Company or statements made by its employees may contain "forward looking" information that involves risks and uncertainties. In particular, statements contained in this Form 10-K that are not historical facts (including, but not limited to statements contained in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" relating to liquidity and capital resources) constitute forward looking statements and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company's actual results of operations and financial condition have varied and may in the future vary significantly from those stated in any forward looking statements. Factors that may cause such differences include, without limitation, the risks, uncertainties and other information discussed within this Form 10-K, as well as the accuracy of the Company's internal estimates of revenue and operating expense levels. The following discussion of the Company's risk factors should be read in conjunction with the financial statements and related notes thereto. The following factors, among others, could cause actual results to differ materially from those contained in forward looking statements contained or incorporated by reference in this report and presented by management from time to time. Such factors, among others, may have a material adverse effect upon the Company's business, results of operations and financial condition. Limited Operating History; History of Losses; Anticipation of Future Losses. The Company has incurred operating losses since its inception and has an accumulated deficit of $20,009,051 as of June 30, 1996. The Company incurred a net loss of $5,097,419 for the fiscal year ended June 30, 1996, compared with a net loss of $3,042,383 for the fiscal year ended June 30, 1995. Such losses have resulted principally from expenses incurred in research and development and from general and administrative costs associated with the Company's development efforts. The continued development of the Company's products will require the commitment of substantial resources to conduct further development and preclinical and clinical trials, and to establish manufacturing, sales, marketing, regulatory and administrative capabilities. In addition, the Company's recently acquired subsidiary, Able, has incurred net operating losses in the past. The Company expects to provide its Able subsidiary with working capital during the foreseeable future until Able can become self-supporting. The Company expects to incur substantial operating losses over the next several years as its product programs expand, various clinical trials commence and marketing efforts are launched. The amount of net losses and the time required by the Company to reach sustained profitability are highly uncertain and to achieve profitability, the Company must, among other things, successfully complete development of its products, obtain regulatory approvals, and establish manufacturing and marketing capabilities by itself or with third parties. There is no assurance that the Company will ever generate substantial revenues or achieve profitability. Future Capital Needs; Uncertainty of Additional Funding. It is anticipated that the Company will continue to expend significant amounts of capital to fund its research and development, clinical trials and the operation of Able. The Company's available working capital is inadequate for completion of the Company's development programs, and additional financing will be necessary for the continued support of the Company's proposed products and operations, including the establishment of manufacturing, 16 marketing and distribution capabilities for its proposed products. There can be no assurance that the Company will be able to secure additional financing or that such financing will be available on favorable terms. If the Company is unable to obtain such additional financing, the Company's ability to maintain its current level of operations could be materially and adversely affected and the Company may be required to reduce its overall expenditures including its research and development activity with respect to certain proposed products. Uncertainties Related to NicErase-SL. Under applicable federal law, the Company will not be permitted to sell NicErase-SL, and thus generate any revenue from its development of NicErase-SL, unless it obtains the necessary regulatory approvals from the FDA for the commercial sale of that product. To obtain such regulatory approvals, the Company must demonstrate to the satisfaction of the FDA, through preclinical studies and clinical trials, that NicErase-SL is safe and effective. Although the results of the Company's pilot Phase 3 clinical trials were encouraging, they do not necessarily indicate, and they do not guarantee, that the results of the ongoing multi-center Phase 3 clinical trial will be favorable to the Company. Nor do the results obtained in the small-scale pilot tests completed by the Company to date necessarily indicate that the Company will ultimately succeed in obtaining FDA approval for the commercial sale of NicErase-SL. The results from preclinical studies and early clinical trials may not be predictive of results that will be obtained in large-scale testing, and there can be no assurance that the Company's clinical trials will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals or will result in marketable products. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. If NicErase-SL is not shown to be safe and effective in either current ongoing, or any future clinical trials, and if the Company is thus unable to commercialize NicErase-SL it would have a material adverse effect on the Company's business, financial condition and results of operations. Integration of Able Acquisition. In August 1996, the Company acquired certain of the assets of Able Laboratories, Inc. There can be no assurance that the anticipated benefits from this acquisition will be realized. Additionally, there can be no assurance that the Company will be able to effectively market the existing Able products, that it will obtain FDA approval to market additional generic drugs or that it will be successful in managing the combined operations. The integration of Able will require substantial attention from management, many of whom have limited experience in integrating acquisitions. The diversion of management's attention, the process of integrating the businesses and any difficulties encountered in the transition process could cause an interruption of business, and could have a material adverse effect on the Company's operations and financial performance. Limited Commercialization of Products. The Company has commercially introduced and is currently marketing through distributors only two products, yielding limited revenues from the sale of these products. Historically, substantially all of the Company's revenues had been generated from research and development contracts and license fees. The Company's ability to achieve profitability will depend on its ability to develop and introduce commercially viable products, obtain regulatory approvals for these products and either successfully manufacture, market and distribute such products on its own or enter into collaborative agreements for product manufacturing, marketing and distribution. Many of the Company's proposed therapeutic and diagnostic products will require substantial further development, preclinical and clinical testing, and investment by the Company or third party licensees in manufacturing, marketing and sales infrastructures prior to their commercialization. No assurance can be given that the Company's development efforts will be successfully completed, that regulatory approvals will be obtained, or that these products, once introduced, will be successfully marketed. Future Acquisitions. Management may from time to time consider other acquisitions of assets, businesses or technologies that will enable the Company to acquire complementary skills and capabilities, offer new products, expand its customer base or obtain other competitive advantages. There can be no assurance that the Company will be able to successfully identify suitable acquisition candidates, obtain financing on satisfactory terms, complete acquisitions, integrate acquired operations into its existing operations or expand into new markets. Acquisitions may result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, and amortization expense related to intangible 17 assets acquired, any of which could materially adversely affect the Company's business and results of operations. Acquisitions, including the Company's recent acquisition of Able, involve a number of potentialrisks, including difficulties in the assimilation of the acquired Company's operations and products, diversion of management's resources, uncertainties associated with operating in new markets and working with new employees and customers, and the potential loss of the acquired company's key employees. There can also be no assurance that the Able acquisition and future acquisitions, if any, will not have a material adverse effect upon the Company's business and results of operations. Once integrated, acquired operations may not achieve levels of revenues, profitability or productivity comparable to those achieved by the Company's existing operations, or otherwise perform as expected. The Company is not currently engaged in negotiations with respect to any acquisition and does not currently have any agreements, arrangements or understandings with respect to any particular acquisition. Limited Manufacturing Capability and Experience. The Company's MycoDot and MycoAKT products are currently made by licensed manufacturers. The Company intends to enter into licenses, joint venture and similar collaborative arrangements with third parties for the manufacture of other proprietary products and proposed products. There are no other such agreements and there can be no assurance that the Company will be successful in securing manufacturing agreements for its products or that such agreements will prove to be on terms favorable to the Company. In addition, the Company's dependence upon third parties for the manufacture of its products and proposed products could have an adverse effect on the Company's profitability and its ability to deliver its proposed products on a timely and competitive basis. To the extent that the Company attempts to manufacture any of its products, there can be no assurance that the Company will be able to attract and retain qualified manufacturing personnel, or build or rent manufacturing facilities. The Company's generic therapeutic products are manufactured at its Able Laboratories facility in South Plainfield, New Jersey. In order to maintain compliance with FDA GMP standards, the Company may have to make significant investments in its infrastructure and plant facility. There can be no assurance that such capital expenditures and overhead costs will not have a material effect upon the Company's ability to achieve profitability. There can be no assurance that the Company will retain the key employees it acquired in the Able acquisition. Lack of Marketing Experience. The Company currently does not plan to market its proprietary products directly and does not have adequate resources or expertise to develop a substantial marketing organization and internal sales force for these products. Since the Company does not have the financial or other resources to undertake extensive direct marketing activities, the Company intends to enter into marketing arrangements with third parties, including possible joint venture, license or distribution arrangements. While the Company intends to license its products for manufacture and sale to established health care or pharmaceutical companies, it has had very limited success in its efforts to enter into such agreements to date. There can be no assurance that the Company will be able to locate collaborative partners or that these strategic alliances, if consummated, will prove successful. With respect to the Company's generic therapeutic products, there can be no assurance that present and potential customers of Able will continue their recent buying patterns without regard to the Able acquisition, and any significant delay or reduction in orders could have an adverse effect on the Company's near-term business and results of operations. Regulation by Government Agencies. The Company's research, preclinical development, clinical trials, manufacturing and marketing of its proposed products are subject to extensive regulation by numerous governmental authorities in the United States (including the FDA), and other equivalent foreign regulatory authorities. The process of obtaining FDA and other required regulatory approvals is lengthy and expensive. There can be no assurance that the Company will be able to obtain the necessary approvals for clinical testing or for the manufacturing or marketing of its proposed products. Further, additional governmental regulation may be established which could prevent or delay regulatory approval of the Company's products. The regulatory process may delay for long periods, and ultimately prevent, marketing of new products or impose costly procedures that would have a material adverse effect on the Company's business. Failure to comply with the applicable regulatory requirements can, among other things, result in fines, suspensions of regulatory approvals, product recalls, operating restrictions and criminal prosecution. 18 The Company's success in the generic drug market depends, in part, on its ability to obtain FDA approval of ANDAs for its new products, as well as its ability to procure a continuous supply of raw materials and to validate the manufacturing processes used to produce consistent test batches for FDA approval. Such raw materials are generally available from several sources; however, this may not always be the case. Since the federal drug application process requires specification of raw material suppliers, if raw materials from a specified supplier were to become unavailable, the Company would be required to file a supplement to its ANDA 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. Additionally, there is often a time lag, sometimes significant, between the receipt of ANDA approval and the actual marketing of the approved product due to this validation process. The Able Laboratories facility is subject to plant inspections by the FDA to determine compliance with GMP standards. The Company could be subject to fines and sanctions such as the suspension of manufacturing or the seizure of drug products if it were found to be in non-compliance with GMP standards. Rapid Technological Advances and Competition. The therapeutic and diagnostic markets in which the Company competes have undergone and can be expected to continue to undergo rapid and significant technological advances. There can be no assurance that the technological developments of others will not render the Company's technology or products incorporating such technology either uneconomical or obsolete. The Company competes with a number of specialized biotechnology companies and major pharmaceutical companies. Most of these companies have substantially greater financial, technical and human resources and research and development staffs and facilities, as well as substantially greater experience in conducting clinical trials, obtaining regulatory approvals, and manufacturing and marketing products than does the Company. There can be no assurance that the Company's products or proposed products will be able to compete successfully. In addition, with its newly acquired generic product line, the Company is now competing in a new market. Generic products with limited competition are generally sold at higher prices, resulting in relatively high gross margins. As more competing products become available, selling prices and gross margins can decline dramatically and impair overall profitability. The Company may experience price erosion in its generic product line. There is also no assurance that the Company will compete successfully in this new market. Dependence on Patents and Proprietary Technology. The Company owns certain patents and has applied for other patents relating to its technology and proposed products. No assurance can be given, however, whether pending patent applications will be granted or whether any patents granted will be enforceable or provide the Company with meaningful protection from competitors. Even if a competitor were to infringe the Company's patents, the costs of enforcing its patent rights may be substantial or even prohibitive. In addition, there can be no assurance that the Company's proposed products will not infringe the patent rights of others. The Company may be forced to expend substantial resources if the Company is required to defend against any such infringement claims. The Company also may desire or be required to obtain licenses from others in order to further develop, produce and market commercially viable products effectively. There can be no assurance that such licenses will be obtainable on commercially reasonable terms, if at all, that the patents underlying such licenses will be valid and enforceable or that the proprietary nature of the unpatented technology underlying such licenses will remain proprietary. The Company also relies on unpatented proprietary know-how and trade secrets, and employs various methods including confidentiality agreements with employees, consultants, manufacturing and marketing partners to protect its trade secrets and know-how. However, such methods may not afford complete protection and there can be no assurance that others will not independently develop such trade secrets and know-how or obtain access thereto. The manufacture and sale of certain products developed by the Company will involve the use of processes, products or information, the rights to certain of which are owned by others. Although the Company has obtained licenses with regard to the use of certain such processes, products and information, there can be no assurance that such licenses will not be terminated or expire during critical 19 periods, that the Company will be able to obtain licenses for other rights which may be important to it, or, if obtained, that such licenses will be obtained on commercially reasonable terms. If the Company is unable to obtain such licenses, the Company may have to develop alternatives to avoid infringing patents of others, potentially causing increased costs and delays in product development and introduction, or precluding the Company from developing, manufacturing or selling its proposed products. Additionally, there can be no assurance that the patents underlying any licenses will be valid and enforceable. To the extent any products developed by the Company are based on licensed technology, royalty payments on the licenses will reduce the Company's gross profit from such product sales and may render the sales of such products uneconomical. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's Financial Statements and related Independent Auditors' Report are presented in the following pages. The financial statements filed in this Item 8 are as follows: Independent Auditors' Report Financial Statements: Balance Sheets -- June 30, 1996 and 1995 Statements of Loss -- Years ended June 30, 1996, 1995 and 1994 Statements of Changes in Stockholders' Equity -- Years ended June 30, 1996, 1995 and 1994 Statements of Cash Flows -- Years ended June 30, 1996, 1995 and 1994 Notes to Financial Statements ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with accountants on accounting or financial disclosure matters. 20 DYNAGEN, INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report 22 Financial Statements: Balance Sheets -- June 30, 1996 and 1995 23 Statements of Loss -- Years Ended June 30, 1996, 1995 and 1994 24 Statements of Changes in Stockholders' Equity -- Years Ended June 30, 1996, 1995 and 1994 25 Statements of Cash Flows -- Years Ended June 30, 1996, 1995 and 1994 26 Notes to Financial Statements 27
21 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders DYNAGEN, INC. Cambridge, Massachusetts We have audited the accompanying balance sheets of DynaGen, Inc. as of June 30, 1996 and 1995 and the related statements of loss, changes in stockholders' equity and cash flows for each of the years in the three-year period ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DynaGen, Inc. at June 30, 1996 and 1995, and the results of its operations and cash flows for each of the years in the three-year period ended June 30, 1996 in conformity with generally accepted accounting principles. WOLF & COMPANY, P.C. Boston, Massachusetts July 24, 1996, except for Note 12 as to which the date is August 19, 1996 22 DYNAGEN, INC. BALANCE SHEETS JUNE 30, 1996 AND 1995
1996 1995 ---- ---- ASSETS Current assets: Cash and cash equivalents (including interest-bearing deposits of $154,000 and $142,000) $ 375,948 $ 263,956 Investment securities available for sale at fair value (Note 2) 10,087,918 4,201,876 Accounts receivable 89,703 28,971 Notes receivable (Note 6) 75,000 -- Accrued interest receivable 86,873 86,653 Prepaid expenses and other current assets 221,283 108,498 ------- ------- Total current assets 10,936,725 4,689,954 ---------- --------- Property and equipment, net (Notes 3 and 4) 143,350 153,280 ------- ------- Other assets: Patents and trademarks, net of accumulated amortization of $54,341 and $46,024 277,138 268,809 Deferred debt financing costs, net of accumulated amortization of $57,230 (Note 4) 217,475 -- Deposits 1,978 1,978 ----- ----- Total other assets 496,591 270,787 ------- ------- $ 11,576,666 $ 5,114,021 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 519,624 $ 263,786 Accrued payroll and payroll taxes 147,441 73,421 Deferred revenue 65,967 250,000 ------ ------- Total current liabilities 733,032 587,207 Convertible note payable (Notes 4 and 8) 2,000,000 -- --------- -------- Total liabilities 2,733,032 587,207 --------- ------- Commitments and contingencies (Note 7) Stockholders' equity (Notes 8 and 12): Preferred stock, $.01 par value, 10,000,000 shares authorized, none outstanding -- -- Common stock, $.01 par value, 40,000,000 shares authorized, 28,559,999 and 21,448,487 shares issued and outstanding 285,600 214,485 Additional paid-in capital 28,567,068 19,236,300 Accumulated deficit (20,009,051) (14,911,632) ----------- ----------- 8,843,617 4,539,153 Unrealized gain (loss) on investment securities available for sale (Note 2) 17 (12,339) ---------- --------- Total stockholders' equity 8,843,634 4,526,814 ---------- --------- $ 11,576,666 $ 5,114,021 ============= ============
See accompanying notes to financial statements. 23 DYNAGEN, INC. STATEMENTS OF LOSS YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994 ---- ---- ---- Revenues (Note 9): Net product sales $ 220,745 $ 247,553 $ -- Contract revenues -- -- 138,255 License fees and royalties 335,000 250,000 298,750 ------- ------- ------- Total revenues 555,745 497,553 437,005 ------- ------- ------- Costs and expenses: Cost of sales 96,680 134,392 -- Contract costs -- -- 82,903 Research and development 3,118,145 1,718,006 2,183,849 Selling, general and administrative 2,684,825 1,983,897 1,997,389 --------- --------- --------- Total costs and expenses 5,899,650 3,836,295 4,264,141 --------- --------- --------- Operating loss (5,343,905) (3,338,742) (3,827,136) ---------- ---------- ---------- Other income (expense): Investment income 367,715 296,555 183,082 Interest expense (Note 4) (63,999) (196) (1,750) Amortization of debt financing costs (Note 4) (57,230) -- -- ------- --------- -------- Other income (expense), net 246,486 296,359 181,332 ------- ------- ------- Loss from continuing operations (5,097,419) (3,042,383) (3,645,804) ---------- ---------- ---------- Loss from operations of fluid systems consulting services -- -- (1,538) Loss on disposal of fluid systems consulting services -- -- (13,407) -------- --------- ------- -- -- (14,945) --------- ---------- ---------- Net loss $(5,097,419) $(3,042,383) $ (3,660,749) =========== =========== ============ Net loss per share $ (.21) $ (.14) $ (.22) =========== ============ ============= Weighted average shares outstanding 24,433,949 21,179,703 16,517,117 ========== ========== ==========
See accompanying notes to financial statements. 24 DYNAGEN, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1996, 1995 AND 1994 (NOTES 4, 7, 8 AND 12)
SERIES A CONVERTIBLE PREFERRED STOCK COMMON STOCK --------------- ------------ SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ Balance at June 30, 1993 -- $ -- 14,544,297 $145,443 Shares issued in 1994 public offering -- -- 6,400,000 64,000 Shares issued in private placement -- -- 128,571 1,286 Cancellation of stock options issued for future services -- -- -- -- Exercise of lenders' warrants -- -- 101,667 1,016 Change in method of accounting for investment securities -- -- -- -- Net loss for the year ended June 30, 1994 -- -- -- -- ------- ------- ---------- -------- Balance at June 30, 1994 -- -- 21,174,535 211,745 Exercise of stock options -- -- 500 5 Exercise of underwriters' warrants -- -- 273,452 2,735 Decrease in unrealized loss on investment securities -- -- -- -- Net loss for the year ended June 30, 1995 -- -- -- -- ------- ------- ---------- -------- Balance at June 30, 1995 -- -- 21,448,487 214,485 Exercise of underwriters' warrants -- -- 503,982 5,040 Exercise of public warrants -- -- 3,244,494 32,445 Shares issued in private placements 1,178,264 3,461,150 1,520,686 15,207 Conversion of preferred stock (1,178,264) (3,461,150) 1,612,834 16,128 Exercise of stock options -- -- 95,855 959 Employee stock and stock option grants -- -- 117,250 1,172 Stock options issued for future services -- -- -- -- Stock issued for interest obligation -- -- 16,411 164 Change in unrealized gain (loss) on investment securities -- -- -- -- Net loss for the year ended June 30, 1996 -- -- -- -- ------- ---------- ---------- -------- Balance at June 30, 1996 -- $ -- 28,559,999 $285,600 ======= ========== ========= ========
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY -- (CONTINUED) YEARS ENDED JUNE 30, 1996, 1995 AND 1994 (NOTES 4, 7, 8 AND 12)
UNREALIZED GAIN (LOSS)ON INVESTMENT ADDITIONAL SECURITIES PAID-IN ACCUMULATED AVAILABLE CAPITAL DEFICIT FOR SALE TOTAL ------- ------- -------- ----- Balance at June 30, 1993 $13,224,175 $ (8,208,500) $ -- $5,161,118 Shares issued in 1994 public offering 5,553,729 -- -- 5,617,729 Shares issued in private placement 385,227 -- -- 386,513 Cancellation of stock options issued for future services (72,540) -- -- (72,540) Exercise of lenders' warrants 19,317 -- -- 20,333 Change in method of accounting for investment securities -- -- (38,662) (38,662) Net loss for the year ended June 30, 1994 -- (3,660,749) -- (3,660,749) ---------- ----------- ------- ---------- Balance at June 30, 1994 19,109,908 (11,869,249) (38,662) 7,413,742 Exercise of stock options 370 -- -- 375 Exercise of underwriters' warrants 126,022 -- -- 128,757 Decrease in unrealized loss on investment securities -- -- 26,323 26,323 Net loss for the year ended June 30, 1995 -- (3,042,383) -- (3,042,383) -------- ------------ ------ ---------- Balance at June 30, 1995 19,236,300 (14,911,632) (12,339) 4,526,814 Exercise of underwriters' warrants 32,085 -- -- 37,125 Exercise of public warrants 3,822,762 -- -- 3,855,207 Shares issued in private placements 1,376,204 -- -- 4,852,561 Conversion of preferred stock 3,445,022 -- -- -- Exercise of stock options 4,616 -- -- 5,575 Employee stock and stock option grants 557,685 -- -- 558,857 Stock options issued for future services 55,225 -- -- 55,225 Stock issued for interest obligation 37,169 -- -- 37,333 Change in unrealized gain (loss) on investment securities -- -- 12,356 12,356 Net loss for the year ended June 30, 1996 -- (5,097,419) -- (5,097,419) ---------- ---------- ------ ---------- Balance at June 30, 1996 $28,567,068 $(20,009,051) $ 17 $8,843,634 =========== ============ ======== ==========
See accompanying notes to financial statements. 25 DYNAGEN, INC. STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net loss $ (5,097,419) $(3,042,383) $(3,660,749) Adjustments to reconcile net loss to net cash used for operating activities: Employee stock and stock option grants 558,857 -- -- Depreciation and amortization 125,610 64,195 91,163 Amortization and accretion of (discounts) premiums on investment securities (134,474) 101,553 50,997 Stock issued for interest obligation 37,333 -- -- Write-off of patent costs 41,852 40,893 -- Gain on sales of investment securities -- -- (4,424) Loss on disposal of fluid systems consulting services -- -- 13,407 (Increase) decrease in operating assets: Accounts receivable (60,732) 30,518 (70,317) Prepaid expenses and other current assets (57,780) 24,121 (56,659) Recoverable amounts on long-term contracts -- -- 7,992 Increase (decrease) in operating liabilities: Accounts payable and accrued expenses 329,858 (77,933) (11,534) Deferred revenue (184,033) 250,000 -- -------- ------- ------- Net cash used for operating activities (4,440,928) (2,609,036) (3,640,124) ---------- ---------- ---------- Cash flows from investing activities: Purchase of investment securities (29,913,212) (3,187,379) (7,198,023) Proceeds from sales and maturities of investment securities 24,174,000 5,500,000 4,136,330 Purchase of property and equipment (36,020) (23,339) (32,522) Patent and trademark costs (72,611) (69,293) (63,911) Decrease in deposits -- 9,325 2,971 Net proceeds from disposal of fluid systems consulting services -- -- 153,752 (Increase) decrease in notes receivable (75,000) -- 16,072 ------- -------- ------ Net cash provided by (used for) investing activities (5,922,843) 2,229,314 (2,985,331) ---------- --------- ---------- Cash flows from financing activities: Net proceeds from exercise of stock warrants and options 3,897,907 129,132 20,333 Net proceeds from private stock placements 4,852,561 -- 386,513 Net proceeds from convertible note payable 1,725,295 -- -- Net proceeds from public stock offerings -- -- 5,617,729 Decrease in deferred offering costs -- -- 50,000 Principal payments on capital lease -- (5,824) (8,673) ------- ------ ------ Net cash provided by financing activities 10,475,763 123,308 6,065,902 ---------- ------- --------- Net change in cash and cash equivalents 111,992 (256,414) (559,553) Cash and cash equivalents at beginning of year 263,956 520,370 1,079,923 ------- ------- --------- Cash and cash equivalents at end of year $ 375,948 $ 263,956 $ 520,370 ============ ============ ============ Supplemental cash flow information: Interest paid on capital lease $ -- $ 196 $ 1,750 Stock options issued (cancelled) in exchange for future services 55,225 -- (72,540) Conversion of preferred stock to common stock 3,461,150 -- --
See accompanying notes to financial statements. 26 DYNAGEN, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996, 1995 AND 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business The Company was incorporated in the state of Delaware in November 1988 for the purpose of developing and marketing therapeutic and diagnostic products for the human health care market. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents Cash equivalents include interest-bearing deposits with original maturities of three months or less. Investment Securities Effective June 30, 1994, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Accordingly, investments in debt securities that management has the positive intent and ability to hold to maturity are classified as "held to maturity" and carried at amortized cost. Investments that are purchased and held principally for the purpose of selling them in the near term are classified as "trading securities" and carried at fair value, with unrealized gains and losses included in earnings. Investments not classified as either of the above are classified as "available for sale" and carried at fair value, with unrealized gains and losses reported as a separate component of stockholders' equity. The cumulative effect of the change in accounting principle at June 30, 1994 was to decrease stockholders' equity by $38,662. There was no effect on the net loss for the year ended June 30, 1994. Prior to June 30, 1994, investment securities were carried at amortized cost which approximated fair value. Gains and losses on disposition of investment securities are computed by the specific identification method. Property And Equipment Property and equipment are stated at cost. Depreciation expense is provided over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized on the straight-line method over the shorter of the estimated useful life of the asset or the life of the related lease term. Goodwill, Organization Expenses, Patents, Trademarks and Deferred Debt Financing Costs Goodwill and organization expenses were amortized over a five-year period on a straight-line basis and were fully amortized as of June 30, 1994. Patent and trademark costs are amortized over a five-year period on a straight-line basis commencing on the earlier of the date placed in service or the date the patent or trademark is granted. Deferred debt financing costs are being amortized on a straight-line basis over the two-year term of the convertible note payable. The related amortization expense for the years ended June 30, 1996, 1995 and 1994 was $79,660, $11,385 and $21,388, respectively. 27 DYNAGEN, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED JUNE 30, 1996, 1995 AND 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Deferred Offering Costs Deferred offering costs represent costs incurred in connection with raising capital. Upon completion of an offering, the amount credited to additional paid-in capital is reduced by the deferred offering costs. Revenue Recognition Revenues from product sales are recognized when products are shipped. Revenues from license fees and royalties are recognized as the terms of the agreements are met. Revenues earned under long-term contracts are recognized using the percentage-of-completion method. Anticipated losses on uncompleted contracts are charged to operations when incurred. Income Taxes Effective July 1, 1993, the Company adopted the provisions of SFAS No. 109, "Accounting for Income Taxes." As permitted under SFAS No. 109, prior year financial statements were not restated. Under SFAS No. 109, deferred tax assets and liabilities are recorded for temporary differences between the financial statement and tax bases of assets and liabilities using the currently enacted income tax rates expected to be in effect when the taxes are actually paid or recovered. A deferred tax asset is also recorded for net operating loss, capital loss and tax credit carryforwards to the extent their realization is more likely than not. The deferred tax expense for the period represents the change in the deferred tax asset or liability from the beginning to the end of the period. The change in accounting principle had no cumulative effect on fiscal years ending prior to July 1, 1993 and no effect on the net loss for the year ended June 30, 1994. Net Loss Per Share Net loss per share is calculated based on the weighted average number of common shares outstanding during the year. The effect of all common stock equivalents has been excluded from the calculation since its inclusion would be anti-dilutive. New Accounting Pronouncements The Financial Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in March 1995. SFAS No. 121 requires the Company to review for impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In certain situations, an impairment loss would be recognized. SFAS No. 121 will become effective for the Company's fiscal year ending June 30, 1997. The Company expects the impact of the new standard to be immaterial to its financial position, results of operations and cash flows. The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation" in October 1995. The Company intends to continue to account for its stock-based transactions with employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and will include the pro forma disclosures required by SFAS No. 123 beginning with its June 30, 1997 financial statements. 28 DYNAGEN, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED JUNE 30, 1996, 1995 AND 1994 2. INVESTMENT SECURITIES The amortized cost and fair value of investment securities available for sale is as follows:
JUNE 30, 1996 ------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---- ----- ------ ----- U.S. Government obligations $ 187,301 $ -- $ (100) $ 187,201 U.S. Government agency obligations 4,295,274 3,445 (1,252) 4,297,467 Corporate obligations 5,605,326 2 (2,078) 5,603,250 --------- - ------ --------- $10,087,901 $3,447 $(3,430) $10,087,918 =========== ====== ======= ===========
JUNE 30, 1995 ------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---- ----- ------ ----- U.S. Government agency obligations $1,702,408 $ 97 $ (8,209) $ 1,694,296 Corporate obligations 2,511,807 -- (4,227) 2,507,580 --------- ---- ------ --------- $4,214,215 $ 97 $(12,436) $4,201,876 ========== ==== ======== ==========
The amortized cost and fair value of debt securities by contractual maturity at June 30, 1996 is as follows:
AMORTIZED FAIR COST VALUE ---- ----- Within 1 year $ 9,086,276 $ 9,082,848 Over 1 to 5 years 1,001,625 1,005,070 --------- --------- $10,087,901 $10,087,918 =========== ===========
There were no sales of securities available for sale during the years ended June 30, 1996 and 1995. 3. PROPERTY AND EQUIPMENT Property and equipment consist of:
JUNE 30, -------- ESTIMATED 1996 1995 USEFUL LIVES ---- ---- ------------ Laboratory equipment $ 220,164 $ 220,164 7 years Furniture and fixtures 173,572 143,091 3-7 years Leasehold improvements 30,976 25,437 1-2 years ------ ------ 424,712 388,692 Less accumulated depreciation and amortization (281,362) (235,412) -------- -------- $ 143,350 $153,280 ========= ========
The related depreciation and amortization expense for the years ended June 30, 1996, 1995 and 1994 was $45,950, $52,810 and $69,775, respectively. 29 DYNAGEN, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED JUNE 30, 1996, 1995 AND 1994 4. DEBT Convertible Note Payable On February 7, 1996, the Company issued a $2,000,000 convertible note payable in connection with a private placement. Deferred debt financing costs were $274,705. (See Note 8.) The note matures on February 7, 1998 and bears interest at 8% per annum, with interest payable quarterly in cash or the Company's common stock. The note is convertible into shares of common stock at any time at the option of the investor at a rate of 67% of the five-day average of the closing bid price per share of the Company's common stock one trading day prior to the date the notice of conversion is received by the Company. The Company may require conversion of the note under certain circumstances. Interest expense on the convertible note payable for the year ended June 30, 1996 was $63,999. Amortization expense on deferred debt financing costs for the year ended June 30, 1996 was $57,230. Capital Lease In December 1991, the Company entered into a lease agreement for telephone equipment with a cost of $25,329. During the year ended June 30, 1995, the Company made the final payment due under the lease and acquired title to the equipment. Interest expense on the lease for the years ended June 30, 1995 and 1994 was $196 and $1,750, respectively. 5. INCOME TAXES As discussed in Note 1, the Company adopted SFAS No. 109, "Accounting for Income Taxes" effective July 1, 1993. There was no provision for income taxes for the years ended June 30, 1996, 1995 and 1994 due to the Company's net operating losses. The difference between the statutory Federal income tax rate of 34% and the Company's effective tax rate is primarily due to net operating losses incurred by the Company and the valuation reserve against the Company's deferred tax asset. The components of the net deferred tax asset are as follows:
JUNE 30, -------- 1996 1995 ---- ---- Deferred tax asset: Federal $ 6,523,000 $ 4,929,000 State 1,793,000 1,433,000 --------- --------- 8,316,000 6,362,000 Valuation reserve (8,316,000) (6,362,000) ---------- ---------- Net deferred tax asset $ -- $ -- =========== ==========
The following differences give rise to deferred income taxes:
JUNE 30, -------- 1996 1995 ---- ---- Net operating loss carryforward $ 7,533,000 $ 5,496,000 Research tax credit carryforward 657,000 672,000 Other 126,000 194,000 ------- ------- 8,316,000 6,362,000 Valuation reserve (8,316,000) (6,362,000) ---------- ---------- Net deferred tax asset $ -- $ -- ========== ===========
30 DYNAGEN, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED JUNE 30, 1996, 1995 AND 1994 5. INCOME TAXES -- (Continued) The change in the valuation reserve is as follows:
YEARS ENDED JUNE 30, -------------------- 1996 1995 1994 ---- ---- ---- Balance at beginning of year $6,362,000 $5,084,000 $ -- Adoption of SFAS No. 109 -- -- 3,525,000 Increase due to current year's net operating loss 1,954,000 1,278,000 1,559,000 --------- --------- --------- Balance at end of year $8,316,000 $6,362,000 $5,084,000 ========== ========== ==========
As of June 30, 1996, the Company has Federal and state net operating loss carryforwards of approximately $18,950,000 and $17,370,000, respectively. The Federal and state net operating loss carryforwards expire in varying amounts beginning in 2004 and 1997, respectively. In addition, the Company has Federal and state research tax credit carryforwards of approximately $583,000 and $113,000, respectively, available to reduce future tax liabilities. The Federal and state research tax credit carryforwards expire in varying amounts beginning in 2004 and 2007, respectively. Use of net operating loss and tax credit carryforwards is subject to annual limitations based on ownership changes in the Company's common stock as defined by the Internal Revenue Code. 6. RELATED PARTY TRANSACTIONS Notes receivable at June 30, 1996 consist of notes to an officer/director and an officer which bear interest at 5.05% per annum and mature on February 2, 1997. The notes are secured by common stock of the Company issuable upon exercise of stock options held by the officers. Note receivable at June 30, 1993 consisted of advances made under a promissory note to an officer/director. The note was secured by 5,000 shares of the Company's common stock and had an annual interest rate of 6%. During the year ended June 30, 1994, the officer/director repaid $900 of the note and the Company forgave the balance. The Company retained a director as a consultant to assist with certain public and investor relations matters. During the years ended June 30, 1996 and 1995, the director was paid fees of $31,000 and $49,000, respectively. During the years ended June 30, 1996 and 1995, the Company paid consulting fees of $11,550 and $18,188, respectively, to the spouse of an officer/director for research and development services. 7. COMMITMENTS AND CONTINGENCIES Lease Agreement The Company's current lease agreement for its corporate headquarters provides for a monthly rental of $15,188 plus real estate taxes and operating expenses through September 30, 1997. The aggregate future minimum rental expense (excluding real estate taxes and operating expenses) payable under the lease agreement at June 30, 1996 is $228,000. Future minimum rentals to be received under a noncancelable sublease at June 30, 1996 are $26,000. Rent expense, net of subleases, for the years ended June 30, 1996, 1995 and 1994 was $61,366, $71,031 and $142,917, respectively. Real estate tax expense for the years ended June 30, 1996, 1995 and 1994 was $90,637, $91,307 and $70,479, respectively. 31 DYNAGEN, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED JUNE 30, 1996, 1995 AND 1994 7. COMMITMENTS AND CONTINGENCIES -- (Continued) Employment Agreements As of June 30, 1996, the Company has employment agreements with three officer/directors that provide for minimum annual salaries, reimbursement of business related expenses and participation in other employee benefit programs. The agreements also include confidentiality, non-disclosure, severance, automatic renewal and non-competition provisions. Salary levels are subject to periodic review by the Board of Directors. Consulting Agreements In May 1993, the Company entered into a two-year consulting agreement for public relations services. As part of the compensation for the services to be rendered, the consultant was granted an option under the 1991 Stock Plan (see Note 8) to purchase 37,200 shares of common stock at $.60 per share exercisable through May 1, 2000. The Company valued the option at $145,080 and was amortizing this expense over the term of the consulting agreement. In May 1994, the consulting agreement was terminated and options to purchase 18,600 shares of common stock valued at $72,540 were cancelled. In February 1996, the Company entered into a six-month public and investor relations services agreement with a public relations firm. As compensation for these services, the firm was granted an option under the 1991 Stock Plan (see Note 8) to purchase 20,000 shares of the Company's common stock at $.01 per share exercisable through February 1, 2003 as long as the firm maintains a business relationship with the Company. The Company valued the option at $55,225 and is amortizing the expense over the term of the agreement. Demand Registration Rights The Company has agreed that, under certain circumstances, it will register under federal and state securities laws certain shares of common stock issued in connection with private placements and certain shares of common stock issuable in connection with warrants issued to the Company's investment banker and agents for the private placements. The Company will bear the cost of registering these securities. (See Note 8). Contingencies Legal claims arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Company's financial position. 8. PREFERRED STOCK, COMMON STOCK, OPTIONS AND WARRANTS 1992 Public Offering In October 1992, the Company completed a public offering of 920,000 units at $5.00 per unit, each unit consisted of one share of common stock and one redeemable common stock purchase warrant. The warrant originally allowed the holder to purchase one share of common stock at a price of $6.50, subject to adjustment in certain instances, through September 24, 1995. As a result of subsequent debt and equity financings, the 917,800 warrants that remain outstanding have been adjusted to allow the holder to purchase 1.7 shares with each warrant at an exercise price of $3.90 per warrant. Furthermore, on August 7, 1995, the Company extended the expiration date of the warrants to September 24, 1997. During the year ended June 30, 1996, 2,200 warrants were exercised to purchase 3,300 shares of common stock. Net proceeds were $9,438. The 1992 public offering underwriter's warrants expired on September 24, 1995. 32 DYNAGEN, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED JUNE 30, 1996, 1995 AND 1994 8. PREFERRED STOCK, COMMON STOCK, OPTIONS AND WARRANTS -- (Continued) 1994 Public Offering On March 23, 1994, the Company completed a public offering of 1,600,000 units at $4.50 per unit. Each unit consisted of four shares of common stock and two Class A redeemable common stock purchase warrants. Each warrant allowed the holder to purchase one share of common stock at a price of $1.20, subject to adjustment in certain instances, through March 16, 1999. Net proceeds of the offering after deduction of all expenses were $5,617,729. The underwriting agreement granted the underwriters warrants to purchase 160,000 units at $7.425 per unit, subject to adjustment in certain instances, during the period March 16, 1995 to March 16, 1999. The warrants contain, among other things, a net exercise feature. Public Offering Warrants In May 1995, the Company filed a registration statement to register the shares issuable upon the exercise of the warrants issued in the 1992 and 1994 public offerings and the shares issuable upon the exercise of the warrants issued to the underwriters of the 1992 and 1994 public offerings. Registration costs of $34,593 were deducted from net proceeds of warrant exercises during the year ended June 30, 1995. 1994 Public Offering Warrants In June 1995, 22,000 warrants issued to the underwriters of the 1994 public offering were exercised at $7.425 per warrant. The Company received proceeds of $163,350 and issued the warrant holder 88,000 shares of common stock and 44,000 Class A redeemable common stock purchase warrants. In addition, in June 1995, 35,000 warrants issued to the underwriters of the 1994 public offering were exercised, using their net exercise feature, in exchange for 185,452 shares of common stock. During the period from July 1995 to November 1995, 103,000 warrants issued to the underwriters of the 1994 public offering were exercised to acquire 503,982 shares of common stock and 10,000 Class A redeemable common stock purchase warrants using their net exercise feature and payment to the Company of $37,125. In December 1995, the Company completed the redemption of the Class A redeemable common stock purchase warrants resulting in the purchase of 3,241,194 shares of common stock yielding net proceeds of $3,845,769 after deducting expenses. The remaining 12,806 unexercised warrants were redeemed by the Company for $.01 per warrant. Private Placements During the year ended June 30, 1993, the Company entered into two common stock private placement agreements. In July 1993, the Company sold 128,571 shares of common stock at $3.50 per share. Net proceeds were $386,513 after deducting commissions and expenses of $63,486. The Company issued warrants to the placement agents to purchase 68,328 shares of common stock at $4.75 per share and 47,400 shares of common stock at $5.53 per share. During the year ended June 30, 1995, the warrant to purchase 47,400 shares was cancelled. The agents' warrants are exercisable over a four-year period commencing one year from the closing date and carry certain demand registration rights. The exercise price is subject to adjustment in certain instances. As a result of subsequent debt and equity financings, the warrant exercise price has been adjusted to $4.37 per share. On February 7, 1996, the Company raised $3 million in a private placement, from the sale to a single investor of 579,626 shares of common stock at a price of approximately $1.73 per share and the issuance of a $2 million convertible note. (See Note 4.) Placement costs for this transaction were $421,157 of which $146,452 was charged to additional paid-in capital and $274,705 was capitalized as deferred debt financing costs. 33 DYNAGEN, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED JUNE 30, 1996, 1995 AND 1994 8. PREFERRED STOCK, COMMON STOCK, OPTIONS AND WARRANTS -- (Continued) On February 21, 1996 and March 4, 1996, the Company issued, in private placements, an aggregate of 388,500 shares of common stock and 1,178,264 shares of Series A preferred stock for aggregate consideration of $3,500,000. Placement costs of $487,461 were charged to additional paid-in capital. The Series A preferred stock was convertible into common stock 100 days after initial issuance into that number of shares obtained by dividing the consideration paid for the preferred stock by 80% of the five-day average of the closing bid price per share of the common stock at the date of the conversion. Each share of preferred stock had a liquidation value equal to $2.9375, the consideration paid per share. In June 1996, the 1,178,264 shares of Series A preferred stock were converted into 1,612,834 shares of common stock based on the above formula. In February 1996, the Company issued, in a private placement, 552,560 shares of common stock for aggregate consideration of $1,000,000. Placement costs of $13,526 were charged to additional paid-in capital. BONUS COMPENSATION In February 1996, the Company granted to certain employees and a consultant, bonus compensation paid in the form of (1) 117,250 shares of common stock outside of the 1991 Stock Plan and the 1989 Stock Option Plan and (2) stock options under the 1991 Stock Plan for 65,000 shares of common stock at an exercise price of $.01 per share. The Company recognized $558,857 in compensation expense associated with the grants. STOCK OPTION PLANS The Company adopted the 1989 Stock Option Plan (the "1989 Plan") and reserved 600,000 shares of common stock for issuance to employees, officers, directors and consultants. Under the 1989 Plan, the Stock Option Committee of the Board of Directors will grant options and establish the terms of the options in accordance with plan provisions. The following table summarizes the activity of options granted under the 1989 plan:
YEARS ENDED JUNE 30, -------------------- 1996 1995 1994 ---- ---- ---- Outstanding at beginning of year 270,000 270,000 270,000 Granted -- -- 83,000 Cancelled -- -- (83,000) Exercised at $.05 per share (50,000) -- -- ------- ------- ------- Outstanding at end of year 220,000 270,000 270,000 ======= ======= ======= Exercisable at end of year 197,500 228,500 187,000 ======= ======= ======= Exercise prices per share at end of year $.75 to $.05 to $.05 to $5.87 $5.87 $5.87 ===== ===== ===== Reserved for future grants at end of year -- -- -- ===== ===== =====
On April 27, 1994, the Company repriced 83,000 stock options issued to employees under the 1989 Plan, by issuing new options in exchange for their old options. The new option exercise price was set at the then current market price of $.75 per share and the new options will vest over two to three years. 34 DYNAGEN, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED JUNE 30, 1996, 1995 AND 1994 8. PREFERRED STOCK, COMMON STOCK, OPTIONS AND WARRANTS -- (Continued) The 1989 Plan options are exercisable for a period of ten years from the date of issuance. The Company adopted the 1991 Stock Plan (the "1991 Plan") and reserved 1,200,000 shares of common stock for issuance to employees, officers, directors and consultants. (See Note 12.) Under the 1991 Plan, the Stock Option Committee of the Board of Directors may grant options, stock awards and purchase rights, and establish the terms of the grant in accordance with the provisions of the plan. The following table summarizes the activity of options granted under the 1991 Plan:
YEARS ENDED JUNE 30, -------------------- 1996 1995 1994 ---- ---- ---- Outstanding at beginning of year 609,100 586,600 597,200 Granted 105,000 50,000 589,000 Cancelled (21,500) (27,000) (599,600) Exercised at $.01 to $.75 per share (51,700) (500) -- ------- ------- ------- Outstanding at end of year 640,900 609,100 586,600 ======= ======= ======= Exercisable at end of year 418,300 201,826 58,600 ======= ======= ====== Exercise prices per share at end of year $.01 to $.60 to $.60 to $6.25 $6.25 $6.25 ===== ===== ===== Reserved for future grants at end of year 506,900 590,400 613,400 ======= ======= =======
On April 27, 1994, the Company repriced 512,000 options issued to employees and directors by issuing new options in exchange for their old options. The new option price was set at the then current market price of $.75 per share and the new options will vest over two to three years. The 1991 Plan options are exercisable for a period of seven years from the date of issuance and certain options contain a net exercise provision. As of June 30, 1996, no stock awards or purchase rights have been granted under the 1991 Plan. Other Stock Options and Warrants On September 6, 1990, the Company's Board of Directors granted non-qualified stock options to purchase 450,000 shares of common stock at a price of $.875 per share through September 2000, all of which are currently exercisable by a former director of the Company. In January 1993, the Company granted an option to purchase 20,000 shares of common stock at a price of $5.25 per share exercisable through January 15, 1999. On November 20, 1995, the Company entered into a one-year investment banking agreement with the underwriter of the Company's prior public offerings. As compensation for services, the Company granted a warrant to purchase 400,000 shares of common stock at an exercise price of $2.50 per share. The warrant is exercisable through November 20, 2000. The shares underlying the warrant were registered on a Form S-3 registration statement declared effective on March 29, 1996. 35 DYNAGEN, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED JUNE 30, 1996, 1995 AND 1994 8. PREFERRED STOCK, COMMON STOCK, OPTIONS AND WARRANTS -- (Continued) Common Stock Reserved The Company has reserved common stock at June 30, 1996 as follows:
NUMBER OF SHARES ------ Convertible note payable 1,234,000 1992 public offering warrants 1,560,260 Private placement agents' warrants 68,328 Stock option plans 1,367,800 Other stock options 470,000 Investment banker's warrant 400,000 ------- Total 5,100,388 =========
The number of shares of common stock reserved in connection with the convertible note payable is subject to adjustment (see Note 4.) 9. REVENUES Product Sales During the years ended June 30, 1996 and 1995, the Company's sales to foreign customers amounted to 36% and 42% of total revenues, respectively. Sales to one foreign customer amounted to 23% of total revenues during the year ended June 30, 1996 and sales to a different foreign customer amounted to 27% of total revenues during the year ended June 30, 1995. A summary of sales by geographic area is as follows:
YEARS ENDED JUNE 30, -------------------- 1996 1995 ---- ---- Far East and Asia $183,706 $ 185,997 United States 18,877 39,860 Europe 8,466 16,462 Other 9,696 5,234 ----- ----- $220,745 $247,553 ======== ========
A summary of sales by product is as follows:
YEARS ENDED JUNE 30, -------------------- 1996 1995 ---- ---- MycoDot (tuberculosis antibody detection) $201,428 $ 201,145 MycoDyn Uritec (tuberculosis therapy compliance test) 19,204 20,256 Other 113 26,152 ------ ------ $220,745 $247,553 ======== ========
The Company's MycoDot product is manufactured on a contract basis by one company located in India. A change in the contract manufacturer could cause a delay in production and result in a possible loss of sales. Contract Revenues The Company had a contract with the U.S. Government which amounted to approximately 32% of total revenues during the year ended June 30, 1994. 36 DYNAGEN, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED JUNE 30, 1996, 1995 AND 1994 9. REVENUES -- (CONTINUED) License Fees And Royalties During the year ended June 30, 1994, the Company received $273,750 in full satisfaction of all minimum royalties due under an agreement in which it granted world-wide licenses to manufacture and sell certain diagnostic tests. Revenue under this agreement was 63% of total revenues for the year ended June 30, 1994. In May 1994, the Company received a non-refundable payment of $25,000 for entering into a letter of intent relating to a distribution agreement for its MycoDot diagnostic test. During the year ended June 30, 1995, the Company entered into an agreement where it granted a third party the right to evaluate licensing the Company's smoking cessation technology on an exclusive worldwide basis, except for Europe. In return, the Company received a $500,000 fee, $250,000 of which was refundable should the Company license its smoking cessation technology to a different party prior to October 15, 1995. On July 13, 1995, the third party informed the Company that it would not exercise its right to license the technology at this time. Revenues earned under this agreement were approximately 45% and 50% of total revenues for the years ended June 30, 1996 and 1995, respectively. License fee revenue for the year ended June 30, 1996 includes $250,000 related to the smoking cessation technology mentioned above, $60,000 for certain rights to manufacture and sell the Company's MycoAKT latex agglutination products, and $25,000 for exclusive MycoDot distribution rights in Japan. 10. EMPLOYEE BENEFIT PLAN The Company has a Section 401(k) Profit Sharing Plan (the "401(k) Plan"). Employees who have attained the age of 21 may elect to reduce their current compensation, subject to certain limitations, and have that amount contributed to the 401(k) Plan. The Company may make discretionary contributions to the 401(k) Plan up to 25% of employee compensation, subject to certain limitations. Employee contributions to the 401(k) Plan are fully vested at all times and all Company contributions become vested over a period of six years. The Company made no contributions to the 401(k) Plan during the years ended June 30, 1996, 1995 and 1994. 11. DISCONTINUED OPERATIONS The Company sold the assets of its fluid systems consulting business on May 6, 1994. A summary of the loss on disposal is as follows: Net proceeds on sale $153,752 Book values of assets sold: Accounts receivable (92,373) Recoverable amounts on long-term contracts (45,871) Property and equipment (28,915) ------- Loss on disposal $(13,407) ========
A summary of the loss from operations of the fluid systems consulting business for the year ended June 30, 1994 is as follows: Contract revenues $502,057 Contract costs 288,480 Selling, general and administrative expenses 215,115 ------- Loss from operations $ (1,538) =========
37 DYNAGEN, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) YEARS ENDED JUNE 30, 1996, 1995 AND 1994 12. SUBSEQUENT EVENTS On July 24, 1996, the Board of Directors granted stock options outside of the 1989 and 1991 stock option plans to purchase 660,000 shares of common stock at an exercise price of $1.94 per share through July 24, 2003 to two new directors. The options vest over a three-year period. On August 5, 1996, the Board of Directors voted to recommend to the stockholders that the Company increase the number of authorized shares of common stock from 40,000,000 to 60,000,000 shares and approved an amendment to the 1991 Stock Plan increasing the number of shares reserved for issuance thereunder from 1,200,000 to 2,200,000 shares, subject to stockholder approval. On August 19, 1996, the Company purchased for $550,000 the tablet business assets of Able Laboratories, Inc. In addition, the Company assumed the sellers' obligations under a lease for a manufacturing facility. Under the lease, the Company will pay rent of $21,965 per month plus certain expenses through March 31, 2000. 13. FAIR VALUE OF FINANCIAL INSTRUMENTS At June 30, 1996, the Company's financial instruments include investment securities which are carried at fair value (see Note 2), notes receivable (see Note 6) and a convertible note payable (see Note 4). The carrying value of the notes receivable approximate their fair value as these instruments bear interest at market rates and mature in less than one year. The fair value of the convertible note payable is approximately $2,985,000 based on the fair value of the common stock issuable on conversion of the note. 14. QUARTERLY DATA (Unaudited) Summaries of operating results on a quarterly basis are as follows:
YEARS ENDED JUNE 30, -------------------- 1996 1995 ---- ---- FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net product sales $ 70 $ 93 $ 39 $ 19 $ 25 $ 154 $ 41 $ 28 License fees and royalties 25 35 25 250 -- 250 -- -- ------- ------- ------- ------- ------- -------- ------- -------- Total revenues 95 128 64 269 25 404 41 28 ------- ------- ------- ------- ------- -------- ------- -------- Cost of sales 22 46 21 8 14 76 24 20 Research and development 1,230 852 566 470 420 340 434 524 Selling, general and administrative 616 880 618 571 462 499 588 435 ------- ------- ------- ------- ------- -------- ------- -------- Total costs and expenses 1,868 1,778 1,205 1,049 896 915 1,046 979 ------- ------- ------- ------- ------- -------- ------- -------- Operating loss (1,773) (1,650) (1,141) (780) (871) (511) (1,005) (951) Other income, net 74 62 57 54 70 69 75 82 ------- ------- ------- ------- ------- -------- ------- -------- Net loss $(1,699) $(1,588) $(1,084) $ (726) $ (801) $ (442) $ (930) $ (869) ======= ======= ======= ======= ======= ======= ======== ======== Net loss per share $ (.06) $ (.06) $ (.05) $ (.03) $ (.04) $ (.02) $ (.04) $ (.04) ======= ======= ======= ======= ======= ======= ======== ======== Weighted average shares outstanding 27,288 26,062 22,628 21,808 21,195 21,175 21,175 21,175 ====== ====== ====== ====== ====== ====== ====== ======
38 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The current directors and executive officers of the Company, their ages and their positions held in the Company are as follows:
NAME AGE POSITION ---- --- -------- Dhananjay G. Wadekar(1) 42 Chairman of the Board, Executive Vice President and Director Dr. Indu A. Muni(1) 53 President, Chief Executive Officer, Treasurer and Director Dr. F. Howard Schneider 57 Senior Vice President -- Technology and Director Dr. Ian R. Ferrier(2)(3) 53 Director Steven Georgiev(2)(3) 61 Director Peter J. Mione 49 Vice President -- Clinical and Regulatory Affairs Theodore A. Olsson 42 Vice President -- Corporate Development - ---------- (1) Member of the Stock Option Committee. (2) Member of the Audit Committee. (3) Member of the Executive Compensation Committee, which was established on July 24, 1996.
The By-laws of the Company provide for the annual election of the Board of Directors. All Directors of the Company are elected to hold office until the next annual meeting of Stockholders, and until their successors have been duly elected and qualified. Officers are elected by, and serve at the discretion of, the Board of Directors. DHANANJAY G. WADEKAR. Mr. Wadekar is a co-founder of the Company and has served as a director of the Company since inception and as Chairman of the Board and Executive Vice President of the Company since November 1991. In addition, he served as the Chairman, Chief Executive Officer and Treasurer of the Company from its inception until July 1990 and as a consultant to the Company during the period July 1990 to October 1991. Since April 1996, Mr. Wadekar has served as a director of CSL Lighting Manufacturing, Inc., a publicly traded manufacturer of high-end lighting fixtures. Mr. Wadekar was a director of Holometrix, Inc., a publicly traded thermal instrumentation company which he founded, from 1985 until November 1994. DR. INDU A. MUNI. Dr. Muni is a co-founder of the Company and has served as President and a director of the Company since inception and as Chief Executive Officer and Treasurer since July 1990. From May 1988 to November 1988, Dr. Muni served as Vice President of Biomaterial and Environmental Science and Engineering for Holometrix, Inc., a publicly traded thermal instrumentation company. Between July 1987 and May 1988, Dr. Muni provided biological consulting services to pharmaceutical and biotechnology companies as an independent consultant. From February 1981 to July 1987, Dr. Muni served as Executive Vice President of Bioassay Systems Corporation, a publicly traded provider of contract research and development services in the areas of pharmaceutical and diagnostic systems. DR. F. HOWARD SCHNEIDER. Dr. Schneider has served as a director of the Company since September 1989, was Chairman of the Board of the Company from July 1990 until February 1991 and became Senior Vice President -- Technology effective June 1991. Dr. Schneider was previously a partner and Senior Vice President of Bogart Delafield Ferrier, Inc. ("Bogart Delafield Ferrier"), a healthcare consulting firm that provides strategic consulting services to pharmaceutical and biotechnology companies. Dr. Schneider participated in the management buyout of Bogart Delafield Ferrier from its parent corporation, McCann Healthcare Group, a subsidiary of Inter Public Group. 39 DR. IAN R. FERRIER. Dr. Ferrier has served as a director of the Company since July 1996. In 1982, he founded Bogart Delafield Ferrier. Dr. Ferrier has served as Chief Executive Officer of Bogart Delafield Ferrier since 1982 and as Chairman since 1989. He earned a medical degree from Edinburgh University and specialized in clinical pharmacology during postgraduate training. Prior to founding Bogart Delafield Ferrier, he held various clinical research and management positions with ICI Pharmaceuticals, Kalipharma Inc., and the Tech America Group. He serves as a director on the board of NASTECH Pharmaceuticals Co., Inc., a publicly traded company, and on the boards of several privately held biotechnology and pharmaceutical companies. STEVEN GEORGIEV. Mr. Georgiev has served as a director of the Company since July 1996. Since November 1993, he has been Chief Executive Officer of Palomar Medical Technologies, Inc. ("Palomar"), a publicly traded Massachusetts firm specializing in medical applications of lasers, and from November 1993 until August 1994 he was also President of Palomar. Mr. Georgiev was a consultant to Palomar's predecessor, Dymed Corporation, from June 1991 until Palomar's September 1991 merger with Dymed Corporation, at which time he became Palomar's Chairman of the Board of Directors. Mr. Georgiev has been a director of Excel Technology, Inc., a publicly traded laser system and electro-optical component company, since October 1992, and of XXSYS Technology, Inc. since June 1994. Mr. Georgiev earned a B.S. degree in Engineering Physics from Cornell University and a M.S. in Management from the Massachusetts Institute of Technology. PETER J. MIONE. Mr. Mione has served the Company as Vice President -- Clinical and Regulatory Affairs since November 1991 and initially as Manager of Regulatory Affairs from May 1989 to October 1991. Mr. Mione is responsible for monitoring clinical studies, preparation of protocols, and submission of data on the Company's proposed products to the FDA for approval. Prior to joining the Company, Mr. Mione was an independent consultant from October 1988 to April 1989 and served as Administrative Coordinator at Toxikon Corp. (from 1987 to 1988), a company providing toxicology study services. Prior thereto, Mr. Mione was Director of Regulatory Compliance at Genus Diagnostics, a manufacturer of diagnostic kits. THEODORE A. OLSSON. Mr. Olsson has served as Vice President -- Corporate Development since August 1996, and initially served as Director, Polymer Products from November 1993 to August 1996. Mr. Olsson is currently responsible for the day-to-day operations at Able Prior to joining the Company, Mr. Olsson served as Senior Consultant and Unit Manager for Arthur D. Little, Inc. from July 1990 to November 1993. Mr. Olsson has a Bachelor of Science degree in Biochemistry from the University of Massachusetts, Amherst. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and The Nasdaq Stock Market. Officers, directors and greater-than-ten percent stockholders are required by Securities and Exchange Commission regulations to furnish the Company with all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, the Company believes that during fiscal 1996 all of its officers, directors and greater-than-ten percent stockholders complied with all Section 16(a) filing requirements. SIGNIFICANT EMPLOYEES The Company also relies on the services of the following significant employees: DR. NICOLAE ISTRATE, age 52, has served as Section Leader, Immunology since September 1991 and as Senior Research Immunologist for the Company since April 1990, and as a Consultant to the Company for six months prior to that time. From December 1988 to October 1989, Dr. Istrate was 40 the Director of the Hybridoma Laboratory for Cambridge Medical Technology Corporation of Billerica, Massachusetts where his responsibilities included the establishment of a monoclonal antibody laboratory and research in diagnostic methods and testing. From March 1987 to September 1988, Dr. Istrate was Manager of the Departmental Laboratory for Swine and Bovine Viral Vaccines in Timisoara, Romania, where he developed methods for viral diagnosis and viral vaccines. Dr. Istrate holds a Doctorate Degree in Veterinary Medicine and a Ph.D. in Microbiology from the Faculty of Veterinary Medicine in Bucharest, Romania. DR. SARASWATHY V. NOCHUR, age 37, became Director -- Diagnostic Products in February 1994 and previously served the Company as Product Manager -- Diagnostic Reagents from July 1991 to February 1994 and as Research Scientist from July 1989 to June 1991. Dr. Nochur initially served the Company as a consultant from March 1989 to July 1989. From October 1983 to December 1988, Dr. Nochur conducted research in connection with her doctoral dissertation at the Massachusetts Institute of Technology on the deregulation of cellulase and the optimization of ethanol production from cellulose. From 1982 to 1983, she was employed by Hoechst Pharmaceuticals where her work involved the development of immunodiagnostic products based on polyclonal antibody detection systems. DENNIS R. BILODEAU, CPA, age 39, has served as Controller for the Company since July 1992. Prior to joining the Company, Mr. Bilodeau was a self employed CPA from January 1992 to July 1992. From May 1990 to December 1991, Mr. Bilodeau was a senior supervisor at Siegfried and Associates, Certified Public Accountants. Mr. Bilodeau was a financial recruiter for Romac & Associates from May 1989 to April 1990. From July 1985 to May 1989, Mr. Bilodeau was Controller at SD-Scicon, Inc., a computer software design company. CYNTHIA A. KILEY, age 36, has served the Company since inception, most recently as Director, Human Resources. She was Manager of Administrations from May 1992 to September 1993 and prior to that served as Office Manager. Ms. Kiley was Manager of Publications for Holometrix, Inc. from May 1988 to February 1989. From 1984 to May 1988, Ms. Kiley was responsible for publications management for Dynatech Scientific, Inc. Ms. Kiley received her Bachelor of Arts Degree in Biology from Emmanuel College. SCIENTIFIC ADVISORY BOARD To provide scientific guidance to the Company's product development programs, as well as assistance in recruiting employees and collaborators, the Company works with a network of experts who serve as consultants to the Company. Each consultant has entered into a consulting agreement with the Company. These consulting agreements typically specify the compensation to be paid to the consultant and require that all information about the Company's products and technology be kept confidential. Most of the consultants are employed by employers other than the Company and may have commitments to or consulting or advisory agreements with other entities that may limit their availability to the Company. The consultants have agreed, however, not to provide any services to any other entities that might conflict with the services that they provide the Company. Members of the Company's Scientific Advisory Board offer consultation on specific issues encountered by the Company. The current members of the Scientific Advisory Board are: DR. F. HOWARD SCHNEIDER, Chairman of the Scientific Advisory Board, Senior Vice President -- Technology and Director. 41 DR. JUDITH K. OCKENE, Professor of Medicine and Director of the Division of Preventive and Behavioral Medicine at the University of Massachusetts Medical School in Worcester, MA. Dr. Ockene has served as a member of the Advisory Committee and Scientific Editor of Surgeon General's Reports on Smoking and Health. DR. LEE B. REICHMAN, Director of the New Jersey Medical School National Tuberculosis Center and Professor of Medicine, Preventive Medicine and Community Health at the University of Medicine and Dentistry of New Jersey. Dr. Reichman is a leading expert on tuberculosis. DR. THOMAS J. RYAN, Former Chief of Cardiology at The University Hospital in Boston. Dr. Ryan is a past President of the American Heart Association. DR. SAUL TZIPORI, Professor and Division Head in Infectious Diseases at Tufts University School of Veterinary Medicine and Professor of Medicine at New England Medical Center in Boston. Dr. Tzipori is a past Associate Director of the International Center for Diarrheal Disease Research in Bangladesh. ITEM 11. EXECUTIVE COMPENSATION COMPENSATION OF DIRECTORS Directors were not compensated during the fiscal year ended June 30, 1996 for attending meetings of the Board of Directors. The Company has since instituted a policy of paying directors who are not employees of the Company a participation fee of $1,000 for each meeting of the Board of Directors attended and for each committee meeting attended, up to a maximum of $1,000 per calendar day, regardless of how may meetings occur on one day. All directors are also reimbursed for out-of-pocket expenses incurred in connection with attendance at meetings and other services as directors. Directors are entitled to receive stock options under the 1991 Stock Plan and the 1989 Stock Option Plan. To date, Mr. Wadekar and Dr. Muni have received no options, and Dr. Schneider has received options to purchase a total of 310,000 shares of the Company's Common Stock under the 1991 Stock Plan and 1989 Stock Option Plan. In addition, the Board of Directors granted to Dr. Ferrier and Mr. Georgiev options to purchase 330,000 shares each, which options were granted outside of the 1991 Stock Plan and 1989 Stock Option Plan. The Company's Stock Option Committee, which administers the Company's 1989 Stock Option Plan and 1991 Stock Plan, has a general policy of awarding stock options at not less than fair market value at the date of grant, and options generally vest over 2, 3 or 4 years. During the fiscal year ended June 30, 1996, however, the Stock Option Committee awarded stock options to Dr. Schneider and certain other officers of the Company at an exercise price of $.01, which options were fully vested on the date of grant. EXECUTIVE COMPENSATION COMMITTEE Although the Board of Directors did not have a compensation committee during the fiscal year ended June 30, 1996, on July 24, 1996, the Board established an Executive Compensation Committee, of which Dr. Ferrier and Mr. Georgiev are the members. The Executive Compensation Committee will review and set cash and non-cash compensation for Dr. Muni and Mr. Wadekar and will provide guidance to the Board of Directors and the Stock Option Committee on the cash and non-cash compensation payable to other officers and employees of the Company. SUMMARY COMPENSATION TABLE The following table sets forth information concerning the annual and long-term compensation for services in all capacities to the Company for the fiscal years ended June 30, 1996, 1995 and 1994, of those persons who were at June 30, 1996 (i) the chief executive officer and (ii) each other executive officer of the Company whose annual compensation exceeded $100,000 (the "Named Officers"): 42
LONG-TERM COMPENSATION(2) --------------- ANNUAL COMPENSATION(1) AWARDS ---------------------- ------ NUMBER OF FISCAL SALARY BONUS OTHER ANNUAL OPTIONS/ ALL OTHER NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION ($) SARS (#) COMPENSATION ($) --------------------------- ---- --- --- ---------------- -------- ---------------- DR. INDU A. MUNI ............... 1996 115,500 -- -- -- 304(3) President, Chief Executive 1995 115,500 -- -- -- 304(3) Officer and Treasurer 1994 112,875 -- -- -- 304(3) DHANANJAY G. WADEKAR ........... 1996 115,500 -- -- -- 304(3) Chairman of the Board and 1995 115,500 -- -- -- 304(3) Executive Vice President 1994 112,875 -- -- -- 304(3) DR. F. HOWARD SCHNEIDER ......... 1996 115,500 -- -- 10,000 304(3) Senior Vice President -- 1995 115,500 -- -- -- 304(3) Technology 1994 112,875 -- -- 150,000(4) 15,476(5) - ---------- (1) Excludes perquisites and other personal benefits, the aggregate annual amount of which for each officer was less than the lesser of $50,000 or 10% of the total salary and bonus reported. (2) The Company did not grant any restricted stock awards or stock appreciation rights ("SARs") or make any long-term incentive plan payouts during the fiscal years ended June 30, 1996, 1995 and 1994. (3) Amount represents the dollar value of group-term life insurance premiums paid by the Company for the benefit of the Named Officer. (4) The Company repriced certain of Dr. Schneider's outstanding options in Fiscal 1994 as follows: Options to purchase 150,000 shares granted in July 1992 at an exercise price of $5.25 were canceled in exchange for options to purchase 150,000 shares at an exercise price of $.75 per share, the fair market value of the Company's Common Stock on the date of exchange, April 27, 1994. (5) Amount is comprised of: (i) $15,172 representing forgiveness from repayment of a loan owed to the Company by Dr. Schneider and (ii) $304 representing the dollar value of group-term life insurance premiums paid by the Company for the benefit of Dr. Schneider.
OPTIONS/SAR GRANTS TABLE The following table sets forth each grant of stock options made during the year ended June 30, 1996 to each of the Named Officers:
INDIVIDUAL GRANTS ----------------- POTENTIAL REALIZABLE % OF TOTAL VALUE AT ASSUMED NUMBER OF OPTIONS MARKET ANNUAL RATES OF SECURITIES GRANTED TO PRICE ON STOCK PRICE APPRECIATION UNDERLYING EMPLOYEES EXERCISE DATE OF FOR OPTION TERM(2) OPTIONS IN FISCAL PRICE GRANT EXPIRATION ------------------------- NAME GRANTED(1) YEAR ($/SHARE) ($/SHARE) DATE 0% ($) 5% ($) 10%($) ---- ---------- ---- --------- --------- ---- ------ ------ --- Dr. Indu A. Muni -- -- -- -- -- -- -- -- Dhananjay G. Wadekar -- -- -- -- -- -- -- -- Dr. F. Howard Schneider 10,000 18.2 0.01 3.19 2/02/03 31,800 44,787 62,064 - ---------- (1) All options granted are reflected in the Summary Compensation Table, were granted on February 2, 1996 and were fully exercisable immediately upon grant. (2) Amounts reported in these columns represent amounts that may be realized upon exercise of the options immediately prior to the expiration of their term assuming the specified compounded rates of appreciation (0%, 5% and 10%) on the market value of the Company's Common Stock over the term of the options. These numbers are calculated based on rules promulgated by the Commission and do not reflect the Company's estimate of future stock price growth. Actual gains, if any, on stock option exercises and Common Stock holdings are dependent on the timing of such exercises and the future performance of the Company's Common Stock. There can be no assurance that the rates of appreciation assumed in this table can be achieved or that the amounts reflected will be received by the individuals.
43 OPTION EXERCISES AND FISCAL YEAR END VALUES Presented below is further information with respect to unexercised stock options to purchase the Company's Common Stock held by each Named Officer as of June 30, 1996. None of the Named Officers exercised any stock options during fiscal 1996.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED OPTIONS HELD AT IN-THE-MONEY OPTIONS AT JUNE 30, 1996 (#) JUNE 30, 1996 ($) ----------------- ----------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ------------- ----------- ------------- Dr. Indu A. Muni -- -- -- -- Dhananjay G. Wadekar -- -- -- -- Dr. F. Howard Schneider 200,000 60,000 332,400 101,250
Stock Plans. The Company currently maintains two employee stock plans: the 1989 Stock Option Plan and the 1991 Stock Plan. Each plan is administered by the Stock Option Committee of the Board of Directors. The 1991 Stock Plan currently provides for the grant of incentive stock options, non-qualified options, awards and authorizations to purchase up to 1,200,000 shares of Common Stock. At the Annual Meeting of Stockholders of the Company, the stockholders will consider and vote upon a proposal to approve an amendment to the 1991 Stock Plan to increase the number of shares of Common Stock authorized to be issued thereunder from 1,200,000 to 2,200,000 shares and to permit grants thereunder to comply with Section 162(m) of the Internal Revenue Code. The terms of options issued under the 1991 Stock Plan, including number of shares, exercise price, duration and vesting, are generally determined by the Stock Option Committee. As of June 30, 1996, options to purchase a total of 640,900 shares of Common Stock were outstanding under the 1991 Stock Plan, of which options for 418,300 shares were then exercisable, and 506,900 shares of Common Stock were reserved for future option grants. The 1989 Stock Option Plan provides for the grant of incentive stock options and non-qualified options to purchase up to an aggregate of 600,000 shares of Common Stock to the Company's employees, officers, directors and consultants. The terms of such options, including number of shares, exercise price, duration and vesting, are generally determined by the Stock Option Committee. As of June 30, 1996, options to purchase a total of 220,000 shares of Common Stock were outstanding under the 1989 Stock Option Plan, of which options for 197,500 shares were then exercisable, and no shares of Common Stock were reserved for future option grants. BOARD OF DIRECTORS AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Company's executive compensation program was administered by the Board of Directors during fiscal 1996. The Board of Directors' informal executive compensation philosophy (which applies generally to all of the Company's management) considers a number of factors, which may include providing levels of compensation competitive with companies at a comparable stage of development and in the Company's geographic area, recognizing the overall cost of living in the Company's geographical region, integrating management's pay with the achievement of performance goals, rewarding above average corporate performance, recognizing and providing incentive for individual initiative and achievement, and promoting a cooperative spirit among the executive officers of the Company. Senior management's compensation is weighted more heavily toward compensation contingent upon the Company's achieving certain business objectives. The Board of Directors also endorses the position that equity ownership by management is beneficial in aligning management's and stockholders' interest in the enhancement of stockholder value by providing management with longer-term incentives. Accordingly, compensation structures for management generally include a combination of salary and stock options. In setting cash compensation for Dr. Muni and Mr. Wadekar and reviewing and approving the cash compensation for all other executive officers, the Board of Directors reviews salaries for all executive officers annually. The Board of Directors' policy is to fix base salaries at levels comparable to the amounts paid to senior executives with comparable qualifications, experience and responsibilities at 44 other companies of similar size and engaged in a similar business to that of the Company in the metropolitan Boston area (which together comprise a subset of the Company's Peer Group Index referred to in the Performance Graph below). In addition, the base salaries take into account the Company's relative performance as compared to these companies and the attainment of certain planned objectives. The Company believes the present compensation for its executive officers is comparable to these similarly situated companies. The cash compensation program for Dr. Muni and Mr. Wadekar is designed to reward performance that enhances stockholder value. The cash compensation package is comprised only of base pay as a function of the several factors mentioned above. Dr. Muni and Mr. Wadekar have not been issued any stock options. As co-founders of the Company, each of Dr. Muni and Mr. Wadekar have an appreciable share of the Company's outstanding Common Stock. As a result, the Board of Directors currently believes that in the near term, Dr. Muni's and Mr. Wadekar's equity interests are sufficiently aligned with the Company's stockholders with respect to the goal of enhancing stockholder value. Incentive-based compensation is an integral part of the overall compensation package of the remaining members of the executive group. Incentive compensation in the form of stock options is designed to provide long-term incentives to executive officers and other employees, to encourage the executive officers and other employees to remain with the Company and to enable them to develop and maintain a stock ownership position in the Company's Common Stock. The Company's 1989 Stock Option Plan and 1991 Stock Plan, administered by the Stock Option Committee (of which Dr. Muni and Mr. Wadekar are the only members), have been used for the granting of stock options to eligible employees, including executive officers. Because some of the Company's products are still in a developmental stage and the Company is only beginning to sell certain of its products, the Stock Option Committee has granted stock options to all employees, officers and directors of the Company in order to foster a spirit of cooperation and common purpose in making the Company a successful enterprise. During fiscal 1996, the Stock Option Committee granted options to purchase 55,000 shares of Common Stock to the directors, officers and employees of the Company. Options generally become exercisable based upon a vesting schedule tied to years of future service to the Company. The value realizable from exercisable options is dependent upon the extent to which the Company's performance is reflected in the market price of the Company's Common Stock at any particular point in time. Equity compensation in the form of stock options is designed to provide long-term incentives to executive officers and other employees. The Stock Option Committee has granted options in order to motivate these employees to maximize stockholder value. Generally, options granted to officers and employees vest over 2, 3 or 4 years and expire after a 7 or 10-year period. In addition, the Stock Option Committee has a general policy of awarding stock options at not less than the fair market value at the date of grant in order to reward executives and other employees only to the extent that the stockholders also benefit through appreciation in the value of the Company. On February 2, 1996, however, the Stock Option Committee granted immediately exercisable options to purchase 55,000 shares of Common Stock to certain officers of the Company at an exercise price of $0.01 per share. In addition, the Board of Directors awarded 117,250 shares of Common Stock, outside of the 1991 Stock Plan and the 1989 Stock Option Plan, as a bonus to a number of employees of the Company. The Common Stock and stock option awards were made to recognize the past performance of all employees and to provide an incentive to all employees to remain with the Company. The Board of Directors believes that these awards foster a spirit of common purpose towards making the corporation a successful enterprise. Options granted to employees are based on such factors as individual initiative, achievement and performance. In making specific grants to executives, the Stock Option Committee evaluates each officer's total equity compensation package. The Stock Option Committee generally reviews the option holdings of each of the executive officers including vesting and exercise price and the then current value of such unvested options. The Stock Option Committee considers equity compensation to be an integral part of a competitive executive compensation package and an important mechanism to align the interests of management with those of the Company's stockholders. 45 The Board of Directors is satisfied that the executive officers of the Company are dedicated to achieving significant improvements in the long-term financial performance of the Company and that the compensation policies and programs implemented and administered have contributed and will continue to contribute towards achieving this goal. This report has been submitted by the members of the Board of Directors and the Stock Option Committee: DR. INDU A. MUNI DR. F. HOWARD SCHNEIDER DHANANJAY G. WADEKAR 46 PERFORMANCE GRAPH The following graph compares the cumulative total stockholder return (assuming reinvestment of dividends, if any) from investing $100 on June 30, 1991 in each of (i) the Company's Common Stock, (ii) The Nasdaq Stock Market Index of U.S. Companies ("Nasdaq Index"), and (iii) the Nasdaq Pharmaceutical Stock Index ("Peer Group Index"). The Peer Group Index reflects the performance of all corporations that are members of the pharmaceutical industry with 2830 as their Primary Standard Industrial Classification Code Number. The values of all three indexes are set at $100 as of June 30, 1991 and are plotted as of the end of each fiscal quarter through the most recent fiscal year end. DYNAGEN, INC. STOCK PERFORMANCE GRAPH FY 1996 DATE NASDAQ-US PEER GROUP INDEX DYNAGEN, INC. - ---- --------- ---------------- ------------- 6/30/91 100 100 100 9/30/91 112 138 93 12/31/91 125 171 82 3/31/92 129 148 106 6/30/92 120 125 82 9/30/92 125 117 74 12/31/92 146 143 64 3/31/93 148 103 75 6/30/93 151 108 67 9/30/93 164 117 52 12/31/93 168 127 41 3/31/94 160 104 12 6/30/94 153 91 9 9/30/94 165 102 19 12/30/94 163 96 26 3/31/95 178 103 36 6/30/95 204 120 59 9/30/95 228 150 51 12/31/95 231 175 29 3/31/96 242 182 36 6/30/96 261 177 32
JUNE 30, 1991 JUNE 30, 1992 JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996 ------------- ------------- ------------- ------------- ------------- ------------- DYNAGEN, INC. $100 $ 82 $ 67 $ 9 $ 59 $ 32 NASDAQ INDEX 100 120 151 153 204 261 PEER GROUP 100 125 108 91 120 177
EMPLOYMENT AND CONSULTING AGREEMENTS The Company has entered into employment agreements with Dr. Muni, the Company's President, Chief Executive Officer and Treasurer, Mr. Wadekar, the Company's Chairman of the Board and Executive Vice President, and Dr. Schneider, the Company's Senior Vice President -- Technology. Dr. Muni's agreement expires in August 1997, and Mr. Wadekar's and Dr. Schneider's agreements expire in October 1997. Under the agreements, Dr. Muni, Mr. Wadekar and Dr. Schneider were paid annual base salaries of $115,500, effective October 1, 1993. Effective July 1, 1996, the Executive Compensation Committee increased Dr. Muni and Dr. Wadekar's annual base salaries to $145,000. 47 In addition, Dr. Muni, Mr. Wadekar and Dr. Schneider have each agreed that (i) during his respective period of employment with the Company and for a period of one year thereafter, he will not engage in any business activity engaged in or under development by the Company and (ii) for a period of three years following his respective period of employment, he will not engage in any activities for any direct competitor similar or related to those activities engaged in during the preceding two years of employment with the Company. In the event the Company terminates Dr. Muni's, Mr. Wadekar's or Dr. Schneider's employment without cause, the Company is obligated to pay to him an amount equal to three months base salary. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company did not have a Compensation Committee during fiscal 1996. The Board of Directors and the Stock Option Committee were responsible for determining compensation of executive officers of the Company. During fiscal 1996, Drs. Muni and Schneider and Mr. Wadekar served on the Board of Directors. None of these three officers was present during discussion of and abstained from voting with respect to his own compensation as an executive officer of the Company. The Stock Option Committee, of which Dr. Muni and Mr. Wadekar are members, did not grant any options to Dr. Muni or Mr. Wadekar during fiscal 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of September 23, 1996, certain information concerning the ownership of the Company's Common Stock by: (i) each person who is known by the Company to own beneficially five percent or more of the outstanding shares of the Company's Common Stock; (ii) each of the Company's directors; (iii) the chief executive officer and each Named Officer; and (iv) all directors and executive officers as a group. Except as otherwise indicated, to the knowledge of the Company, the persons listed in the table have sole voting and investment powers with respect to the shares indicated.
SHARES PERCENTAGE OF BENEFICIALLY OUTSTANDING NAME OF BENEFICIAL OWNER OWNED COMMON STOCK(1) ------------------------ ----- --------------- Dhananjay G. Wadekar 1,651,250 5.8% 99 Erie Street Cambridge, Massachusetts 02139 Dr. Indu A. Muni 1,437,250 5.0% 99 Erie Street Cambridge, Massachusetts 02139 Dr. F. Howard Schneider(2) 270,000 * 99 Erie Street Cambridge, Massachusetts 02139 Dr. Ian R. Ferrier 0 0% c/o Bogart Delafield Ferrier, Inc. North Tower, 5th Floor 49 Headquarters Plaza Morristown, New Jersey 07960 Steven Georgiev 0 0% c/o Palomar Medical Technologies, Inc. 66 Cherry Hill Drive Beverly, Massachusetts 01915 All Directors and Executive Officers as a group (7 persons)(3) 3,461,375 12.0%
- ---------- * Indicates less than 1%. (1) As of September 23, 1996, there were 28,661,412 shares of the Company's Common Stock outstanding. Pursuant to the rules of the Securities and Exchange Commission (the "Commission"), shares of Common Stock that an individual or group has a right to acquire on or before November 22, 1996 (i.e., 48 within 60 days after September 23, 1996) pursuant to the exercise of presently exercisable or outstanding options, warrants or conversion privileges are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Information with respect to beneficial ownership is based upon information furnished by such stockholder. (2) Includes 200,000 shares issuable to Dr. Schneider pursuant to immediately exercisable stock options. Does not include 100 shares owned by Dr. Schneider's wife, of which he disclaims any beneficial interest or control. (3) Includes 279,875 shares issuable pursuant to immediately exercisable stock options. Does not include 100 shares owned by Dr. Schneider's wife of which he disclaims any beneficial interest or control. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In fiscal 1996, the Company entered into a strategic marketing relationship for certain of the Company's technologies with Bogart Delafield Ferrier. In connection with this relationship, the Company paid to Bogart Delafield Ferrier $30,000 in fees plus $2,377 for expenses. Bogart Delafield Ferrier is also entitled to royalties of 1 1/2% of the dollar value of any transaction with respect to certain of the Company's technologies initiated with a pharmaceutical or managed care company between March 12, 1996 and September 30, 1996. No such transaction was initiated during this time period. Dr. Ferrier, who became a director of the Company in July 1996, is Chief Executive Officer and Chairman of Bogart Delafield Ferrier. 49 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements: The following financial statements are filed as part of this report: Independent Auditors' Report Balance Sheets -- June 30, 1996 and 1995 Statements of Loss -- Years Ended June 30, 1996, 1995 and 1994 Statements of Changes in Stockholders' Equity -- Years Ended June 30, 1996, 1995 and 1994 Statements of Cash Flows -- Years Ended June 30, 1996, 1995 and 1994 Notes to Financial Statements 2. Financial Statement Schedules: No financial statement schedules have been included as part of this report because they are either not required or the information is otherwise included. 3. List of Exhibits: The following exhibits, required by Item 601 of Regulation S-K, are filed as a part of this Annual Report on Form 10-K. Exhibit numbers, where applicable, in the left column correspond to those of Item 601 of Regulation S-K.
EXHIBIT NO. ITEM AND REFERENCE --- ------------------ 2a -- Asset Purchase Agreement, dated August 9, 1996, among DynaGen, Inc., Able Acquisition Corp., Able Laboratories, Inc. and Alpharma USPD Inc. (filed as Exhibit 2.1 to Registrant's Form 8-K dated August 19, 1996 and incorporated by reference). 2b -- Product Supply Agreement, dated August 9, 1996, among DynaGen, Inc., Able Acquisition Corp. and Able Laboratories, Inc. (filed as Exhibit 2.2 to Registrant's Form 8-K dated August 19, 1996 and incorporated by reference). 3a -- Certificate of Incorporation, as amended (filed as Exhibit 3a to Registrant's Registration Statement on Form S-1, No. 33-46445, and incorporated by reference). 3b -- By-laws, as amended (filed as Exhibit 3b to Registrant's Registration Statement on Form S-1, No. 33-46445, and incorporated by reference). 4a -- Specimen Common Stock Certificate (filed as Exhibit 4a to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference). 4b -- Specimen Warrant Certificate (filed as Exhibit 4b to Registrant's Registration Statement on Form S-1, No. 33-46445, and incorporated by reference). 4c -- Form of Warrant Agreement (filed as Exhibit 1d to Registrant's Registration Statement on Form S-1, No. 33-46445, and incorporated by reference). 4d -- Subscription Agreement between the Registrant and GFL Performance Fund Limited, dated January 31, 1996 (filed as Exhibit 4b to Registrant's Registration Statement on Form S-3 (File No. 333-1748) and incorporated herein by reference). 4e -- Note Purchase Agreement between the Registrant and GFL Performance Fund Limited, dated January 31, 1996 (filed as Exhibit 4c to Registrant's Registration Statement on Form S-3 (File No. 333-1748) and incorporated herein by reference). 4f -- Convertible Note issued by the Registrant to GFL Performance Fund Limited, dated February 7, 1996 (filed as Exhibit 4d to Registrant's Registration Statement on Form S-3 (File No. 333-1748) and incorporated herein by reference).
50
EXHIBIT NO. ITEM AND REFERENCE --- ------------------ 4g -- Registration Rights Agreement between the Registrant and GFL Performance Fund Limited, dated February 7, 1996 (filed as Exhibit 4e to Registrant's Registration Statement on Form S-3 (File No. 333-1748) and incorporated herein by reference). 4h -- Offshore Securities Subscription Agreement between the Registrant and Julius Baer Securities Inc., dated February 16, 1996 (filed as Exhibit 4e to Registrant's Current Report on Form 8-K dated February 2, 1996 and incorporated herein by reference). 4i -- Offshore Securities Subscription Agreement between the Registrant and Julius Baer Securities Inc., dated February 29, 1996 (filed as Exhibit 4f to Registrant's Current Report on Form 8-K dated February 2, 1996 and incorporated herein by reference). 4j -- Registration Rights Agreement between the Registrant and Julius Baer Securities Inc., dated February 16, 1996 (filed as Exhibit 4g to Registrant's Current Report on Form 8-K dated February 2, 1996 and incorporated herein by reference). 4k -- Registration Rights Agreement between the Registrant and Julius Baer Securities Inc., dated February 29, 1996 (filed as Exhibit 4h to Registrant's Current Report on Form 8-K dated February 2, 1996 and incorporated herein by reference). 4l -- Investment Banking Agreement between the Registrant and H. J. Meyers & Co., Inc., dated November 20, 1995 (filed as Exhibit 4f to Amendment No. 1 to Registrant's Registration Statement on Form S-3, No. 333-1748, and incorporated herein by reference). 4m -- Common Stock Purchase Warrant issued by the Registrant to H. J. Meyers & Co., Inc., dated November 20, 1995 (filed as Exhibit 4g to Amendment No. 1 to Registrant's Registration Statement on Form S-3, No. 333-1748, and incorporated herein by reference). 4n -- Form of Warrant Agent Agreement (filed as Exhibit 4g to Registrant's Registration Statement on Form S-1, No. 33-71416, and incorporated by reference). 10a* -- 1989 Stock Option Plan, as amended (filed as Exhibit 10c to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference). 10b* -- Form of Incentive Stock Option Agreement under 1989 Stock Option Plan of the Registrant (filed as Exhibit 4.6 to Registrant's Registration Statement on Form S-8, No.33-66826, and incorporated by reference). 10c* -- Form of Non-Qualified Stock Option Agreement under 1989 Stock Option Plan of the Registrant (filed as Exhibit 4.7 to Registrant's Registration Statement on Form S-8, No. 33-66826, and incorporated by reference). 10d* -- 1991 Stock Plan (filed as Exhibit 10z to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference). 10e* -- Form of Incentive Stock Option Agreement under 1991 Plan (filed as Exhibit 10aa to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference). 10f* -- Form of Non-Qualified Stock Option Agreement under 1991 Plan (filed as Exhibit 10bb to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference). 10g* -- Non-Qualified Stock Option Agreement dated July 24, 1996 granting a stock option to Dr. Ian Ferrier (filed herewith). 10h* -- Non-Qualified Stock Option Agreement dated July 24, 1996 granting a stock option to Steven Georgiev (filed herewith). 10i* -- Employment Agreement dated September 1, 1989 by and between the Company and Dr. Indu A. Muni (filed as Exhibit 10a to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference).
51
EXHIBIT NO. ITEM AND REFERENCE --- ------------------ 10j* -- Amendment 1 to Key Employment Agreement by and between DynaGen, Inc. and Indu A. Muni (filed as Exhibit 10bb to Registrant's Registration Statement on Form S-1, No. 33-71416, and incorporated by reference). 10k* -- Employment Agreement dated October 1, 1991 by and between the Company and Dr. F. Howard Schneider (filed as Exhibit 10w to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference). 10l* -- Employment Agreement dated November 1, 1991 by and between the Company and Dhananjay G. Wadekar (filed as Exhibit 10x to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference). 10m* -- Amendment 1 to Key Employment Agreement by and between DynaGen, Inc. and Dhananjay G. Wadekar (filed as Exhibit 10cc to Registrant's Registration Statement on Form S-1, No. 33-71416, and incorporated by reference). 10n -- Lease Agreement dated September 26, 1991 by and between the Company and The 99 Erie Street Realty Trust and the Edward S. Stimpson Trust with respect to its facility at 99 Erie Street, Cambridge, Massachusetts (previously filed as the only Exhibit to Registrant's Form 10-Q for the quarter ended September 30, 1991). 10o -- Amendment to Lease Agreement dated May 15, 1992 by and between the Company and The 99 Erie Street Realty Trust and the Edward S. Stimpson Trust with respect to its facility at 99 Erie Street, Cambridge, Massachusetts (filed herewith). 10p -- Second Amendment to Lease Agreement dated May 31, 1993 by and between the Company and The 99 Erie Street Realty Trust and the Edward S. Stimpson Trust with respect to its facility at 99 Erie Street, Cambridge, Massachusetts (filed as Exhibit 10w to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993, and incorporated by reference). 10q -- Third Amendment to Lease Agreement dated April 1, 1995 by and between the Company and The 99 Erie Street Realty Trust and the Edward S. Stimpson Trust with respect to its facility at 99 Erie Street, Cambridge, Massachusetts (filed as Exhibit 10r to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, and incorporated by reference). 10r -- Exercise of Option to Extend Lease Term dated May 3, 1996, from the Company to Meredith & Grew, Incorporated with respect to its facility at 99 Erie Street, Cambridge, Massachusetts (filed herewith). 10s -- Lease Agreement dated November 29, 1984 between Hollywood Court Associates and Able Laboratories, Inc. with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith). 10t -- Space Expansion and Term Extension Agreement dated April 1988 between Hollywood Court Associates and Able Laboratories, Inc. with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith). 10u -- Assignment of Lease dated April 1989 between Hollywood Court Associates and CVN Associates L.P. with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith). 10v -- Space Expansion Agreement dated June 1993 between CVN Associates, L.P. and Able Laboratories, Inc. with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith). 10w -- Term Extension Agreement dated June 1993 between CVN Associates, L.P. and Able Laboratories, Inc. with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith). 10x -- Assignment of Lease dated August 19, 1996 between Able Laboratories, Inc. and Able Acquisition Corp. (predecessor corporation to Able) with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith).
52
EXHIBIT NO. ITEM AND REFERENCE --- ------------------ 10y -- Landlord's Consent to Assignment of Lease dated August 19, 1996 among CVN Associates, L.P., Able Acquisition Corp. (predecessor corporation to Able), Able Laboratories, Inc. and the Company with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith). 10z -- Guaranty of Lease dated August 19, 1996 between the Company and Able Laboratories, Inc. with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith). 21 -- Subsidiary of the Registrant (filed herewith). 23a -- Consent of Wolf & Company, P.C. dated September 25, 1996 (filed herewith). 24a -- Power of Attorney is contained on page 54 of this Annual Report on Form 10-K. 27 -- Financial Data Schedule (filed herewith in electronic format only).
---------- * Indicates a management contract or any compensatory plan, contract or arrangement. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended June 30, 1996. (c) Exhibits: The Company hereby files as part of this Form 10-K the exhibits listed in Item 14(a)(3) above. (d) Financial Statement Schedules: No financial statement schedules are filed as part of this Form 10-K. 53 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT ON FORM 10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF CAMBRIDGE, COMMONWEALTH OF MASSACHUSETTS ON SEPTEMBER 30, 1996. DYNAGEN, INC. By: /s/ DHANANJAY G. WADEKAR ---------------------------- DHANANJAY G. WADEKAR CHAIRMAN OF THE BOARD OF DIRECTORS AND EXECUTIVE VICE PRESIDENT PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT ON FORM 10-K HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED; AND EACH OF THE UNDERSIGNED OFFICERS AND DIRECTORS OF DYNAGEN, INC. HEREBY SEVERALLY CONSTITUTES AND APPOINTS DHANANJAY G. WADEKAR, DR. INDU A. MUNI AND JOHN M. HESSION, AND EACH OF THEM SINGLY, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER TO THEM, AND EACH OF THEM SINGLY, TO SIGN FOR HIM, IN HIS NAME IN THE CAPACITY INDICATED BELOW, ALL AMENDMENTS TO SUCH REPORT ON FORM 10-K, HEREBY RATIFYING AND CONFIRMING HIS SIGNATURE AS IT MAY BE SIGNED BY HIS ATTORNEYS TO SUCH REPORT AND ANY AND ALL AMENDMENTS THERETO.
NAME CAPACITY DATE ---- -------- ---- /s/ DHANANJAY G. WADEKAR Chairman of the Board, Executive September 30, 1996 - ----------------------------- Vice President and Director DHANANJAY G. WADEKAR /s/ DR. INDU A. MUNI President, Chief Executive Officer, September 30, 1996 - ----------------------------- Treasurer, (Principal Executive, DR. INDU A. MUNI Financial and Accounting Officer) and Director /s/ DR. F. HOWARD SCHNEIDER Senior Vice President -- Technology September 30, 1996 - ----------------------------- and Director DR. F. HOWARD SCHNEIDER /s/ STEVEN GEORGIEV Director September 30, 1996 - ----------------------------- STEVEN GEORGIEV /s/ DR. IAN R. FERRIER Director September 30, 1996 - ----------------------------- DR. IAN R. FERRIER
54 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT --- ---------------------- 2a -- Asset Purchase Agreement, dated August 9, 1996, among DynaGen, Inc., Able Acquisition Corp., Able Laboratories, Inc. and Alpharma USPD Inc. (filed as Exhibit 2.1 to Registrant's Form 8-K dated August 19, 1996 and incorporated by reference). 2b -- Product Supply Agreement, dated August 9, 1996, among DynaGen, Inc., Able Acquisition Corp. and Able Laboratories, Inc. (filed as Exhibit 2.2 to Registrant's Form 8-K dated August 19, 1996 and incorporated by reference). 3a -- Certificate of Incorporation, as amended (filed as Exhibit 3a to Registrant's Registration Statement on Form S-1, No. 33-46445, and incorporated by reference). 3b -- By-laws, as amended (filed as Exhibit 3b to Registrant's Registration Statement on Form S-1, No. 33-46445, and incorporated by reference). 4a -- Specimen Common Stock Certificate (filed as Exhibit 4a to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference). 4b -- Specimen Warrant Certificate (filed as Exhibit 4b to Registrant's Registration Statement on Form S-1, No. 33-46445, and incorporated by reference). 4c -- Form of Warrant Agreement (filed as Exhibit 1d to Registrant's Registration Statement on Form S-1, No. 33-46445, and incorporated by reference). 4d -- Subscription Agreement between the Registrant and GFL Performance Fund Limited, dated January 31, 1996 (filed as Exhibit 4b to Registrant's Registration Statement on Form S-3 (File No. 333-1748) and incorporated herein by reference). 4e -- Note Purchase Agreement between the Registrant and GFL Performance Fund Limited, dated January 31, 1996 (filed as Exhibit 4c to Registrant's Registration Statement on Form S-3 (File No. 333-1748) and incorporated herein by reference). 4f -- Convertible Note issued by the Registrant to GFL Performance Fund Limited, dated February 7, 1996 (filed as Exhibit 4d to Registrant's Registration Statement on Form S-3 (File No. 333-1748) and incorporated herein by reference). 4g -- Registration Rights Agreement between the Registrant and GFL Performance Fund Limited, dated February 7, 1996 (filed as Exhibit 4e to Registrant's Registration Statement on Form S-3 (File No. 333-1748) and incorporated herein by reference). 4h -- Offshore Securities Subscription Agreement between the Registrant and Julius Baer Securities Inc., dated February 16, 1996 (filed as Exhibit 4e to Registrant's Current Report on Form 8-K dated February 2, 1996 and incorporated herein by reference). 4i -- Offshore Securities Subscription Agreement between the Registrant and Julius Baer Securities Inc., dated February 29, 1996 (filed as Exhibit 4f to Registrant's Current Report on Form 8-K dated February 2, 1996 and incorporated herein by reference). 4j -- Registration Rights Agreement between the Registrant and Julius Baer Securities Inc., dated February 16, 1996 (filed as Exhibit 4g to Registrant's Current Report on Form 8-K dated February 2, 1996 and incorporated herein by reference). 4k -- Registration Rights Agreement between the Registrant and Julius Baer Securities Inc., dated February 29, 1996 (filed as Exhibit 4h to Registrant's Current Report on Form 8-K dated February 2, 1996 and incorporated herein by reference). 4l -- Investment Banking Agreement between the Registrant and H. J. Meyers & Co., Inc., dated November 20, 1995 (filed as Exhibit 4f to Amendment No. 1 to Registrant's Registration Statement on Form S-3, No. 333-1748, and incorporated herein by reference).
INDEX TO EXHIBITS -- (CONTINUED)
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT --- ------------------ 4m -- Common Stock Purchase Warrant issued by the Registrant to H. J. Meyers & Co., Inc., dated November 20, 1995 (filed as Exhibit 4g to Amendment No. 1 to Registrant's Registration Statement on Form S-3, No. 333-1748, and incorporated herein by reference). 4n -- Form of Warrant Agent Agreement (filed as Exhibit 4g to Registrant's Registration Statement on Form S-1, No. 33-71416, and incorporated by reference). 10a* -- 1989 Stock Option Plan, as amended (filed as Exhibit 10c to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference). 10b* -- Form of Incentive Stock Option Agreement under 1989 Stock Option Plan of the Registrant (filed as Exhibit 4.6 to Registrant's Registration Statement on Form S-8, No.33-66826, and incorporated by reference). 10c* -- Form of Non-Qualified Stock Option Agreement under 1989 Stock Option Plan of the Registrant (filed as Exhibit 4.7 to Registrant's Registration Statement on Form S-8, No. 33-66826, and incorporated by reference). 10d* -- 1991 Stock Plan (filed as Exhibit 10z to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference). 10e* -- Form of Incentive Stock Option Agreement under 1991 Plan (filed as Exhibit 10aa to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference). 10f* -- Form of Non-Qualified Stock Option Agreement under 1991 Plan (filed as Exhibit 10bb to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference). 10g* -- Non-Qualified Stock Option Agreement dated July 24, 1996 granting a stock option to Dr. Ian Ferrier (filed herewith). 10h* -- Non-Qualified Stock Option Agreement dated July 24, 1996 granting a stock option to Steven Georgiev (filed herewith). 10i* -- Employment Agreement dated September 1, 1989 by and between the Company and Dr. Indu A. Muni (filed as Exhibit 10a to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference). 10j* -- Amendment 1 to Key Employment Agreement by and between DynaGen, Inc. and Indu A. Muni (filed as Exhibit 10bb to Registrant's Registration Statement on Form S-1, No. 33-71416, and incorporated by reference). 10k* -- Employment Agreement dated October 1, 1991 by and between the Company and Dr. F. Howard Schneider (filed as Exhibit 10w to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference). 10l* -- Employment Agreement dated November 1, 1991 by and between the Company and Dhananjay G. Wadekar (filed as Exhibit 10x to Registrant's Registration Statement on Form S-18, No. 33-31836-B, and incorporated by reference). 10m* -- Amendment 1 to Key Employment Agreement by and between DynaGen, Inc. and Dhananjay G. Wadekar (filed as Exhibit 10cc to Registrant's Registration Statement on Form S-1, No. 33-71416, and incorporated by reference). 10n -- Lease Agreement dated September 26, 1991 by and between the Company and The 99 Erie Street Realty Trust and the Edward S. Stimpson Trust with respect to its facility at 99 Erie Street, Cambridge, Massachusetts (previously filed as the only Exhibit to Registrant's Form 10-Q for the quarter ended September 30, 1991).
INDEX TO EXHIBITS -- (CONTINUED)
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT --- ------------------ 10o -- Amendment to Lease Agreement dated May 15, 1992 by and between the Company and The 99 Erie Street Realty Trust and the Edward S. Stimpson Trust with respect to its facility at 99 Erie Street, Cambridge, Massachusetts (filed herewith). 10p -- Second Amendment to Lease Agreement dated May 31, 1993 by and between the Company and The 99 Erie Street Realty Trust and the Edward S. Stimpson Trust with respect to its facility at 99 Erie Street, Cambridge, Massachusetts (filed as Exhibit 10w to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993, and incorporated by reference). 10q -- Third Amendment to Lease Agreement dated April 1, 1995 by and between the Company and The 99 Erie Street Realty Trust and the Edward S. Stimpson Trust with respect to its facility at 99 Erie Street, Cambridge, Massachusetts (filed as Exhibit 10r to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, and incorporated by reference). 10r -- Exercise of Option to Extend Lease Term dated May 3, 1996, from the Company to Meredith & Grew, Incorporated with respect to its facility at 99 Erie Street, Cambridge, Massachusetts (filed herewith). 10s -- Lease Agreement dated November 29, 1984 between Hollywood Court Associates and Able Laboratories, Inc. with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith). 10t -- Space Expansion and Term Extension Agreement dated April 1988 between Hollywood Court Associates and Able Laboratories, Inc. with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith). 10u -- Assignment of Lease dated April 1989 between Hollywood Court Associates and CVN Associates L.P. with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith). 10v -- Space Expansion Agreement dated June 1993 between CVN Associates, L.P. and Able Laboratories, Inc. with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith). 10w -- Term Extension Agreement dated June 1993 between CVN Associates, L.P. and Able Laboratories, Inc. with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith). 10x -- Assignment of Lease dated August 19, 1996 between Able Laboratories, Inc. and Able Acquisition Corp. (predecessor corporation to Able) with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith). 10y -- Landlord's Consent to Assignment of Lease dated August 19, 1996 among CVN Associates, L.P., Able Acquisition Corp. (predecessor corporation to Able), Able Laboratories, Inc. and the Company with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith). 10z -- Guaranty of Lease dated August 19, 1996 between the Company and Able Laboratories, Inc. with respect to the Company's facility at 6 Hollywood Court, South Plainfield, New Jersey (filed herewith). 21 -- Subsidiary of the Registrant (filed herewith). 23a -- Consent of Wolf & Company, P.C. dated September 25, 1996 (filed herewith). 24a -- Power of Attorney is contained on page 54 of this Annual Report on Form 10-K. 27 -- Financial Data Schedule (filed herewith in electronic format only).
- ---------- * Indicates a management contract or any compensatory plan, contract or arrangement. EX-10.G 2 NON-QUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10g DYNAGEN, INC. Non-Qualified Stock Option Agreement DYNAGEN, INC., a Delaware corporation (the "Company"), hereby grants this 24th day of July, 1996, to Ian Ferrier (the "Optionee"), an option to purchase a maximum of 330,000 shares (the "Option Shares") of Common Stock, $.01 par value (the "Common Stock"), at the price of $1.94 per share, on the following terms and conditions: 1. GRANT AS NON-QUALIFIED OPTION; OTHER OPTIONS. This Option is intended to be a Non-Qualified Option (rather than an incentive stock option), and the Stock Option Committee (the "Committee") intends to take appropriate action, if necessary, to achieve this result. This Option is in addition to any other options heretofore or hereafter granted to the Optionee by the Company, but a duplicate original of this instrument shall not affect the grant of another option. 2. EXTENT OF OPTION IF BUSINESS RELATIONSHIP CONTINUES. If the Optionee has continued to serve the Company in the capacity of an employee, officer, director, agent, advisor, or consultant (such service is described herein as maintaining or being involved in a "Business Relationship" with the Company), on the following dates, the Optionee may exercise this Option for the number of Option Shares set opposite the applicable date: Less than one year from the date hereof - No shares One year but less than two years from - 25% of the Option Shares the date hereof Two years but less than three years from - An additional 35% of the the date hereof Option Shares Three years from the date hereof - An additional 40% of the Option Shares The foregoing rights are cumulative and, while the Optionee continues to maintain a Business Relationship with the Company, may be exercised up to and including the date which is seven (7) years from the date this Option is granted. All of the foregoing rights are subject to Sections 3 and 4, as appropriate, if the Optionee ceases to maintain a Business Relationship with the Company or dies, becomes disabled or undergoes dissolution while involved in a Business Relationship with the Company. 3. TERMINATION OF BUSINESS RELATIONSHIP. If the Optionee ceases to maintain a Business Relationship with the Company, other than by reason of death or disability as defined in Section 4, no further installments of this Option shall become exercisable and this Option shall terminate after the passage of thirty (30) days from the date the Business Relationship ceases, but in no event later than the scheduled expiration date. In such a case, the Optionee's only rights hereunder shall be those which are properly exercised before the termination of this Option. 4. DEATH; DISABILITY. If the Optionee dies while involved in a Business Relationship with the Company, this Option may be exercised, to the extent of the number of Option Shares with respect to which the Optionee could have exercised it on the date of his death, by his estate, personal representative or beneficiary to whom this Option has been assigned pursuant to Section 9, at any time within 180 days after the date of death, but not later than the scheduled expiration date. If the Optionee's Business Relationship with the Company is terminated by reason of disability, this Option may be exercised, to the extent of the number of Option Shares with respect to which the Optionee could have exercised it on the date the Business Relationship was terminated, at any time within 180 days after the date of such termination, but not later than the scheduled expiration date. At the expiration of such 180-day period or the scheduled expiration date, whichever is the earlier, this Option shall terminate and the only rights hereunder shall be those as to which the Option was properly exercised before such termination. If the Optionee is a corporation, partnership, trust or other entity that is dissolved, liquidated, becomes insolvent or enters into a merger or acquisition with respect to which such Optionee is not the surviving entity at the time when such entity is involved in a Business Relationship with the Company, this Option shall immediately terminate as of the date of such event, and the only rights hereunder shall be those as to which this Option shall immediately terminate as of the date of such event, and the only rights hereunder shall be those as to which this Option was properly exercised before such dissolution or other event. 5. PARTIAL EXERCISE. Exercise of this Option up to the extent above stated may be made in part at any time and from time to time within the above limits, except that this Option may not be exercised for a fraction of a share unless such exercise is with respect to the final installment of stock subject to this Option and a fractional share (or cash in lieu thereof) must be issued to permit the Optionee to exercise completely such final installment. Any fractional share with respect to which an installment of this Option cannot be exercised because of the limitation contained in the preceding sentence shall remain subject to this Option and shall be available for later purchase by the Optionee in accordance with the terms hereof. 6. PAYMENT OF PRICE. The option exercise price is payable in United States dollars and may be paid: (a) in cash or by check, or any combination of the foregoing, equal in amount to the option exercise price; or (b) in the discretion of the Committee, in cash, by check, by delivery of shares of the Company's Common Stock having a fair market value (as determined by the Committee) equal as of the date of exercise to the option exercise price, or by any combination of the foregoing, equal in amount to the option exercise price. If the Optionee delivers shares of Common Stock held by the Optionee (the "Old Stock") to the Company in full or partial payment of the option exercise price, and the Old Stock so delivered is subject to restrictions or limitations imposed by agreement between the Optionee and the Company, the Common Stock received by the Optionee on the exercise of this Option shall be subject to all restrictions and limitations applicable to the Old Stock to the extent that the -2- Optionee paid for such Common Stock by delivery of Old Stock, in addition to any restrictions or limitations imposed by this Agreement. 7. AGREEMENT TO PURCHASE FOR INVESTMENT. By acceptance of this Option, the Optionee agrees that a purchase of Option Shares under this Option will not be made with a view of their distribution, as that term is used in the Securities Act of 1993, as amended (the "Securities Act"), unless in the opinion of counsel to the Company such distribution is in compliance with or exempt from the registration and prospectus requirements of the Securities Act and applicable state securities laws, and the Optionee agrees to sign a certificate to such effect at the time of exercising this Option and agrees that the certificate for the Option Shares so purchased shall be inscribed with a legend to ensure compliance with the Securities Act and applicable state securities laws. 8. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of this Agreement, this Option may be exercised by written notice to the Company, at the principal executive office of the Company, or to such transfer agent as the Company shall designate. Such notice shall state the election to exercise this Option and the number of Option Shares in respect of which it is being exercised and shall be signed by the person so exercising this Option. Such notice shall be accompanied by payment of the full exercise price of such Option Shares, and the Company shall deliver a certificate representing such Option Shares as soon as practicable after the notice shall be received. The certificate for the Option Shares as to which this Option shall have been so exercised shall be registered in the name of the person so exercising this Option (or, if this Option shall be exercised by the Optionee and if the Optionee shall so request in the notice exercising this Option, shall be registered in the name of the Optionee and another person jointly, with right of survivorship) and shall be delivered as provided above to or upon the written order of the person exercising this Option. In the event this Option shall be exercised, pursuant to Section 4 hereof, by any person other than the Optionee, such notice shall be accompanied by appropriate proof of the right of such person to exercise this Option. All Option Shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and nonassessable. 9. OPTION NOT TRANSFERABLE. This Option is not transferable or assignable except by will, by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act, or the rules thereunder. 10. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of this Option imposes no obligation on the Optionee to exercise it. 11. NO OBLIGATION TO CONTINUE BUSINESS RELATIONSHIP. The Company and any related corporations are not by this Option obligated in any manner to continue to maintain a Business Relationship with the Optionee in any capacity whatsoever. 12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. The Optionee shall have no rights as a stockholder with respect to Option Shares subject to this Agreement until a stock certificate therefore has been issued to the Optionee and is fully paid for by the Optionee. -3- 13. ADJUSTMENTS. Upon the occurrence of any of the following events, the Optionee's rights with respect to this Option shall be adjusted as follows: A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the Option Shares shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. B. RECAPITALIZATION OR REORGANIZATION. In the event of a recapitalization or reorganization of the Company (other than an Acquisition as defined in Section 16) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, the Optionee upon exercising this Option shall be entitled to receive for the purchase price paid upon such exercise the securities he would have received if he had exercised the Option prior to such recapitalization or reorganization. C. DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, this Option shall terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee. D. ISSUANCES OF SECURITIES. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of price of shares subject to this Option. No adjustments shall be made for dividends paid cash or in property other than securities of the Company. E. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. In the event of any stock dividend, stock split, combination, recapitalization or other similar change in the capital structure of the Company, this Option and the Option price shall be equitably adjusted and, in lieu of issuing fractional shares upon exercise thereof, this Option (and the corresponding Option Shares) shall be rounded upward or downward to the nearest whole share (rounding upward for all amounts equal to or in excess of .51). In particular, without affecting the generality of the foregoing, it is understood that for the purposes of Sections 2 through 4 hereof, inclusive, maintaining or being involved in a Business Relationship with the Company includes maintaining or being involved in a Business Relationship with its parent (if any) and any present or future subsidiaries of the Company. 14. WITHHOLDING TAXES. The Optionee hereby agrees that the Company may withhold from the Optionee's wages or other remuneration the appropriate amount of federal, state and local taxes attributable to the Optionee's exercise of any installment of this Option. At the Company's discretion, the amount required to be withheld may be withheld in cash from such wages or other remuneration, or in kind from the Common Stock otherwise deliverable to the Optionee on exercise of this Option. The Optionee further agrees that, if the Company does not -4- withhold an amount from the Optionee's wages or other remuneration sufficient to satisfy the Company's withholding obligation, the Optionee will reimburse the Company on demand, in cash, for the amount underwithheld. 15. NO EXERCISE OF OPTION IF EMPLOYMENT TERMINATED FOR MISCONDUCT. If the employment or engagement of the Optionee is terminated for "Misconduct," this Option shall terminate on the date of such termination and this Option shall thereupon not be exercisable to any extent whatsoever. "Misconduct" is conduct, as determined by the Board of Directors, involving one or more of the following: (i) disloyalty, gross negligence, dishonesty or breach of fiduciary duty to the Company; or (ii) the commission of an act of embezzlement, fraud or deliberate disregard of the rules or policies of the Company which results in loss, damage or injury to the Company; or (iii) the unauthorized disclosure of any trade secret or confidential information of the Company; or (iv) the commission of an act which constitutes unfair competition with the Company or which induces any customer of the Company to break a contract with the Company; or (v) the substantial and continuing failure of the Optionee to render services to the Company in accordance with his assigned duties, as determined by two-thirds of the members of the Board of Directors. In making such determination, the Board of Directors shall act fairly and in utmost good faith. 16. ACCELERATION AND VESTING OF OPTION FOR BUSINESS COMBINATIONS. If the Company is to be consolidated with or acquired by another entity in a merger, sale of all or substantially all of the Company's assets or otherwise (an "Acquisition"), then this Option shall, if the Committee so designates, become fully vested and exercisable by the Optionee immediately prior to the consummation of such Acquisition. 17. GOVERNING LAW; SUCCESSORS AND ASSIGNS. This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of Delaware and shall be binding upon the heirs, personal representatives, executors, administrators, successors and assigns of the parties. 18. EXPRESS CONSIDERATION FOR OPTION GRANT. This Option is being granted to the Optionee on the express condition and for the express consideration that the Optionee has previously executed, or will immediately execute and deliver in connection with this Option grant, a form of nondisclosure, assignment of inventions and/or noncompetition agreement (or any combination thereof) satisfactory to the Company. If such agreement has not been executed, or if the Optionee refuses to execute such agreement, this Option may be canceled by the Company in its sole and absolute discretion. 19. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof. -5- IN WITNESS WHEREOF, the Company and the Optionee have caused this instrument to be executed, and the Optionee whose signature appears below acknowledges acceptance of an original copy of this Agreement. /s/ Ian Ferrier _____________________________ DYNAGEN, INC. SIGNATURE OF OPTIONEE /s/ Dhanajay G. Wadekar _____________________________ By:_____________________________ Print Name of Optionee Executive Vice President _____________________________ Title: ___________________________ Street Address _____________________________ City State Zip Code _____________________________ Social Security Number EX-10.H 3 NON-QUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10h DYNAGEN, INC. Non-Qualified Stock Option Agreement DYNAGEN, INC., a Delaware corporation (the "Company"), hereby grants this 24th day of July, 1996, to Steven Georgiev (the "Optionee"), an option to purchase a maximum of 330,000 shares (the "Option Shares") of Common Stock, $.01 par value (the "Common Stock"), at the price of $1.94 per share, on the following terms and conditions: 1. GRANT AS NON-QUALIFIED OPTION; OTHER OPTIONS. This Option is intended to be a Non-Qualified Option (rather than an incentive stock option), and the Stock Option Committee (the "Committee") intends to take appropriate action, if necessary, to achieve this result. This Option is in addition to any other options heretofore or hereafter granted to the Optionee by the Company, but a duplicate original of this instrument shall not affect the grant of another option. 2. EXTENT OF OPTION IF BUSINESS RELATIONSHIP CONTINUES. If the Optionee has continued to serve the Company in the capacity of an employee, officer, director, agent, advisor, or consultant (such service is described herein as maintaining or being involved in a "Business Relationship" with the Company), on the following dates, the Optionee may exercise this Option for the number of Option Shares set opposite the applicable date: Less than one year from the date hereof - No shares One year but less than two years from - 25% of the Option Shares the date hereof Two years but less than three years from - An additional 35% of the the date hereof Option Shares Three years from the date hereof - An additional 40% of the Option Shares The foregoing rights are cumulative and, while the Optionee continues to maintain a Business Relationship with the Company, may be exercised up to and including the date which is seven (7) years from the date this Option is granted. All of the foregoing rights are subject to Sections 3 and 4, as appropriate, if the Optionee ceases to maintain a Business Relationship with the Company or dies, becomes disabled or undergoes dissolution while involved in a Business Relationship with the Company. 3. TERMINATION OF BUSINESS RELATIONSHIP. If the Optionee ceases to maintain a Business Relationship with the Company, other than by reason of death or disability as defined in Section 4, no further installments of this Option shall become exercisable and this Option shall terminate after the passage of thirty (30) days from the date the Business Relationship ceases, but in no event later than the scheduled expiration date. In such a case, the Optionee's only rights hereunder shall be those which are properly exercised before the termination of this Option. 4. DEATH; DISABILITY. If the Optionee dies while involved in a Business Relationship with the Company, this Option may be exercised, to the extent of the number of Option Shares with respect to which the Optionee could have exercised it on the date of his death, by his estate, personal representative or beneficiary to whom this Option has been assigned pursuant to Section 9, at any time within 180 days after the date of death, but not later than the scheduled expiration date. If the Optionee's Business Relationship with the Company is terminated by reason of disability, this Option may be exercised, to the extent of the number of Option Shares with respect to which the Optionee could have exercised it on the date the Business Relationship was terminated, at any time within 180 days after the date of such termination, but not later than the scheduled expiration date. At the expiration of such 180-day period or the scheduled expiration date, whichever is the earlier, this Option shall terminate and the only rights hereunder shall be those as to which the Option was properly exercised before such termination. If the Optionee is a corporation, partnership, trust or other entity that is dissolved, liquidated, becomes insolvent or enters into a merger or acquisition with respect to which such Optionee is not the surviving entity at the time when such entity is involved in a Business Relationship with the Company, this Option shall immediately terminate as of the date of such event, and the only rights hereunder shall be those as to which this Option shall immediately terminate as of the date of such event, and the only rights hereunder shall be those as to which this Option was properly exercised before such dissolution or other event. 5. PARTIAL EXERCISE. Exercise of this Option up to the extent above stated may be made in part at any time and from time to time within the above limits, except that this Option may not be exercised for a fraction of a share unless such exercise is with respect to the final installment of stock subject to this Option and a fractional share (or cash in lieu thereof) must be issued to permit the Optionee to exercise completely such final installment. Any fractional share with respect to which an installment of this Option cannot be exercised because of the limitation contained in the preceding sentence shall remain subject to this Option and shall be available for later purchase by the Optionee in accordance with the terms hereof. 6. PAYMENT OF PRICE. The option exercise price is payable in United States dollars and may be paid: (a) in cash or by check, or any combination of the foregoing, equal in amount to the option exercise price; or (b) in the discretion of the Committee, in cash, by check, by delivery of shares of the Company's Common Stock having a fair market value (as determined by the Committee) equal as of the date of exercise to the option exercise price, or by any combination of the foregoing, equal in amount to the option exercise price. If the Optionee delivers shares of Common Stock held by the Optionee (the "Old Stock") to the Company in full or partial payment of the option exercise price, and the Old Stock so delivered is subject to restrictions or limitations imposed by agreement between the Optionee and the Company, the Common Stock received by the Optionee on the exercise of this Option shall be subject to all restrictions and limitations applicable to the Old Stock to the extent that the -2- Optionee paid for such Common Stock by delivery of Old Stock, in addition to any restrictions or limitations imposed by this Agreement. 7. AGREEMENT TO PURCHASE FOR INVESTMENT. By acceptance of this Option, the Optionee agrees that a purchase of Option Shares under this Option will not be made with a view of their distribution, as that term is used in the Securities Act of 1993, as amended (the "Securities Act"), unless in the opinion of counsel to the Company such distribution is in compliance with or exempt from the registration and prospectus requirements of the Securities Act and applicable state securities laws, and the Optionee agrees to sign a certificate to such effect at the time of exercising this Option and agrees that the certificate for the Option Shares so purchased shall be inscribed with a legend to ensure compliance with the Securities Act and applicable state securities laws. 8. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of this Agreement, this Option may be exercised by written notice to the Company, at the principal executive office of the Company, or to such transfer agent as the Company shall designate. Such notice shall state the election to exercise this Option and the number of Option Shares in respect of which it is being exercised and shall be signed by the person so exercising this Option. Such notice shall be accompanied by payment of the full exercise price of such Option Shares, and the Company shall deliver a certificate representing such Option Shares as soon as practicable after the notice shall be received. The certificate for the Option Shares as to which this Option shall have been so exercised shall be registered in the name of the person so exercising this Option (or, if this Option shall be exercised by the Optionee and if the Optionee shall so request in the notice exercising this Option, shall be registered in the name of the Optionee and another person jointly, with right of survivorship) and shall be delivered as provided above to or upon the written order of the person exercising this Option. In the event this Option shall be exercised, pursuant to Section 4 hereof, by any person other than the Optionee, such notice shall be accompanied by appropriate proof of the right of such person to exercise this Option. All Option Shares that shall be purchased upon the exercise of this Option as provided herein shall be fully paid and nonassessable. 9. OPTION NOT TRANSFERABLE. This Option is not transferable or assignable except by will, by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act, or the rules thereunder. 10. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of this Option imposes no obligation on the Optionee to exercise it. 11. NO OBLIGATION TO CONTINUE BUSINESS RELATIONSHIP. The Company and any related corporations are not by this Option obligated in any manner to continue to maintain a Business Relationship with the Optionee in any capacity whatsoever. 12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. The Optionee shall have no rights as a stockholder with respect to Option Shares subject to this Agreement until a stock certificate therefore has been issued to the Optionee and is fully paid for by the Optionee. -3- 13. ADJUSTMENTS. Upon the occurrence of any of the following events, the Optionee's rights with respect to this Option shall be adjusted as follows: A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the Option Shares shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. B. RECAPITALIZATION OR REORGANIZATION. In the event of a recapitalization or reorganization of the Company (other than an Acquisition as defined in Section 16) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, the Optionee upon exercising this Option shall be entitled to receive for the purchase price paid upon such exercise the securities he would have received if he had exercised the Option prior to such recapitalization or reorganization. C. DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, this Option shall terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee. D. ISSUANCES OF SECURITIES. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of price of shares subject to this Option. No adjustments shall be made for dividends paid cash or in property other than securities of the Company. E. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. In the event of any stock dividend, stock split, combination, recapitalization or other similar change in the capital structure of the Company, this Option and the Option price shall be equitably adjusted and, in lieu of issuing fractional shares upon exercise thereof, this Option (and the corresponding Option Shares) shall be rounded upward or downward to the nearest whole share (rounding upward for all amounts equal to or in excess of .51). In particular, without affecting the generality of the foregoing, it is understood that for the purposes of Sections 2 through 4 hereof, inclusive, maintaining or being involved in a Business Relationship with the Company includes maintaining or being involved in a Business Relationship with its parent (if any) and any present or future subsidiaries of the Company. 14. WITHHOLDING TAXES. The Optionee hereby agrees that the Company may withhold from the Optionee's wages or other remuneration the appropriate amount of federal, state and local taxes attributable to the Optionee's exercise of any installment of this Option. At the Company's discretion, the amount required to be withheld may be withheld in cash from such wages or other remuneration, or in kind from the Common Stock otherwise deliverable to the Optionee on exercise of this Option. The Optionee further agrees that, if the Company does not -4- withhold an amount from the Optionee's wages or other remuneration sufficient to satisfy the Company's withholding obligation, the Optionee will reimburse the Company on demand, in cash, for the amount underwithheld. 15. NO EXERCISE OF OPTION IF EMPLOYMENT TERMINATED FOR MISCONDUCT. If the employment or engagement of the Optionee is terminated for "Misconduct," this Option shall terminate on the date of such termination and this Option shall thereupon not be exercisable to any extent whatsoever. "Misconduct" is conduct, as determined by the Board of Directors, involving one or more of the following: (i) disloyalty, gross negligence, dishonesty or breach of fiduciary duty to the Company; or (ii) the commission of an act of embezzlement, fraud or deliberate disregard of the rules or policies of the Company which results in loss, damage or injury to the Company; or (iii) the unauthorized disclosure of any trade secret or confidential information of the Company; or (iv) the commission of an act which constitutes unfair competition with the Company or which induces any customer of the Company to break a contract with the Company; or (v) the substantial and continuing failure of the Optionee to render services to the Company in accordance with his assigned duties, as determined by two-thirds of the members of the Board of Directors. In making such determination, the Board of Directors shall act fairly and in utmost good faith. 16. ACCELERATION AND VESTING OF OPTION FOR BUSINESS COMBINATIONS. If the Company is to be consolidated with or acquired by another entity in a merger, sale of all or substantially all of the Company's assets or otherwise (an "Acquisition"), then this Option shall, if the Committee so designates, become fully vested and exercisable by the Optionee immediately prior to the consummation of such Acquisition. 17. GOVERNING LAW; SUCCESSORS AND ASSIGNS. This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of Delaware and shall be binding upon the heirs, personal representatives, executors, administrators, successors and assigns of the parties. 18. EXPRESS CONSIDERATION FOR OPTION GRANT. This Option is being granted to the Optionee on the express condition and for the express consideration that the Optionee has previously executed, or will immediately execute and deliver in connection with this Option grant, a form of nondisclosure, assignment of inventions and/or noncompetition agreement (or any combination thereof) satisfactory to the Company. If such agreement has not been executed, or if the Optionee refuses to execute such agreement, this Option may be canceled by the Company in its sole and absolute discretion. 19. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof. -5- IN WITNESS WHEREOF, the Company and the Optionee have caused this instrument to be executed, and the Optionee whose signature appears below acknowledges acceptance of an original copy of this Agreement. /s/ Steven Georgiev _____________________________ DYNAGEN, INC. SIGNATURE OF OPTIONEE /s/ Dhananjay G. Wadekar _____________________________ By:_______________________________ Print Name of Optionee Executive Vice President _____________________________ Title: ___________________________ Street Address ______________________________ City State Zip Code _____________________________ Social Security Number EX-10.O 4 AMENDMENT TO LEASE EXHIBIT 10o AMENDMENT TO LEASE This Amendment to Lease is entered into as of this 15 day of May, 1992 by and between Wallace I. Stimpson and John W. Stimpson, trustees of the 99 Erie Street Realty Trust u/d/t dated as of August 27, 1987 and recorded with the Middlesex South District Registry of Deeds in Book 18515, Page 427 and Nicholas U. Sommerfeld, Edward S. Stimpson, III, Harry F. Stimpson, Jr. and Margaret W. Stimpson, Trustees of the Edward S. Stimpson Trust u/d/t dated January 24, 1985 and recorded with the Middlesex South District Registry of Deeds in Book 13515, Page 407 (collectively, the "Landlord") and DynaGen, Inc., a Massachusetts corporation (the "Tenant"). RECITALS A. Reference is made to that certain lease (the "Lease") by and between Landlord and Tenant dated as of September 26, 1991 in which Tenant has rented the Premises located at 99 Erie Street, Cambridge, Massachusetts from the Landlord; B. Landlord and Tenant wish to amend the Lease on the terms and conditions herein contained; and C. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Lease. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. Landlord and Tenant each acknowledge that Tenant has exercised its option to extend the term of the Lease pursuant to Paragraph 2.5 of the Lease so that the Termination Date is now September 30, 1993. 2. Section 4.1 of the Lease is hereby deleted in its entirety and the following replaced therefor: 4.1 Consent Required for Tenant's Alterations. The Tenant shall not make alterations or additions to the Premises except in accordance with the building standards from time to time in effect, with construction rules and regulations from time to time promulgated by Landlord and applicable to tenants in the Building, with plans and specifications therefore first approved by Landlord which approval shall not be unreasonably withheld or delayed. 3. Landlord agrees to assist Tenant with planned capital leasehold improvements to the Premises in an amount not to exceed Ten Thousand Dollars ($10,000.00) (the "Landlord's Capital Payment"). The Landlords Capital Payment will be made (i) to a third party vendor upon presentment of an invoice or invoices and satisfactory evidence that the underlying capital item has been properly installed or work completed in a good and workmanlike manner, as the case may be, to Landlord's reasonable satisfaction or (ii) to Tenant as a reimbursement for payment of any such invoice(s) upon presentment of evidence that said invoice(s) has (have) been fully paid together with evidence that the capital item(s) has been properly installed or completed in a good and workmanlike manner, as the case may be, to Landlord's reasonable satisfaction. The leasehold improvements for which Landlord pays shall be owned by Landlord in accordance with Section 4.2 of the Lease and are hereby specifically excluded from Exhibit D to the Lease. 4. Except as otherwise expressly modified herein, the Lease is hereby ratified and confirmed in all respects. IN WITNESS WHEREOF this Amendment is executed under seal as of the date first above written. Landlord: 99 Erie Street Realty Trust By:/s/John W. Stimpson ----------------------------- Name: John W. Simpson Title: Trustee and not individually Edward S. Stimpson Trust By:/s/Edward S. Stimpson III ----------------------------- Name: Edward S. Stimpson III Title: Trustee and not individually Tenant: DynaGen, Inc. By:/s/Indu A. Muni ----------------------------- Name: Indu A. Muni Title: President 2 EX-10.R 5 EXTENSION OF LEASE TERM [logo] DYNAGEN, INC. EXHIBIT 10r May 3, 1996 Meredith & Grew, Incorporated Attention: Robert M. Brierley Property Manager 160 Federal Street Boston, MA 02110-1701 Re: Extension of Lease Term, 99 Erie Street, Cambridge Dear Sirs: In accordance with Paragraph 2 of the Third Amendment to Lease, dated April 1, 1995, by and between Wallace I. Stimpson and John W. Stimpson, Trustees of the 99 Erie Street Realty Trust u/d/t dated as of August 27, 1987, and recorded with the Middlesex South District Registry of Deeds in Book 18515, page 427 and Nicholas U. Sommerfield, Edward S. Stimpson, III, Harry F. Stimpson, Jr. and Margaret W. Stimpson, Trustees of the Edward S. Stimpson Trust u/d/t dated January 24, 1985, and recorded with the Middlesex South District Registry of Deeds in Book 13515, page 407 (collectively, the "Landlord") and DynaGen, Inc., a Delaware Corporation (the "Tenant") with reference made to that certain Lease dated as of September 26, 1991 as amended by an Amendment to Lease and Second Amendment to Lease dated as of May 31, 1993 (collectively, the "Lease") dated as of May 15, 1992, and Second Amendment to Lease dated as of May 31, 1993, by and between Landlord and Tenant in which Tenant has rented the Premises located at 99 Erie Street, Cambridge, Massachusetts from the Landlord. Tenant hereby exercises its option to extend the Term (as ascribed in the Lease) of this Lease with respect to the Premises for an additional period of one (1) years, from October 1, 1996 through September 30, 1997, without the need of any further acts or deeds by either party. Sincerely, /s/Dennis R. Bilodeau ------------------------- Dennis R. Bilodeau, CPA Controller DRB/cak 99 ERIE STREET CAMBRIDGE, MA 02139 USA 617/491-2527 FAX: 617/354-3902 EX-10.S 6 LEASE AGREEMENT EXHIBIT 10s THIS LEASE AGREEMENT, made the 29th day of November, 1984, between HOLLYWOOD COURT ASSOCIATES a partnership of New Jersey, located at 2029 Morris Avenue, in the Township of Union, in the County of Union and State of New Jersey 07083, herein designated as the Landlord, and ABLE LABORATORIES, INC., located at 6 Hollywood Court, in the Borough of South Plainfield, in the County of Middlesex and State of New Jersey 07080, herein designated as the Tenant; Witnesseth that, the Landlord does hereby lease to the Tenant and the Tenant does hereby rent from the Landlord, the following described premises: That certain portion of the premises known as 6 Hollywood Court, South Plainfield, New Jersey, as more fully shown and set forth on the sketch attached hereto and forming a part hereof, the demised premises being outlined therein in red; for a term of five (5) years, commencing on January 25, 1985, and ending on January 24, 1990, to be used and occupied only and for no other purpose than for the manufacturing of pharmaceuticals, maintaining a laboratory facility in connection with said manufacturing, maintaining warehouse facilities in connection with said business, and offices related thereto; Upon the following Conditions and Covenants: 1st: The tenant covenants and agrees to pay to the Landlord, as rent for and during the term hereof, the sum of ($350,000.00) Three Hundred Fifty Thousand and 00/100 Dollars, in the following manner: $5,000.00 per month for the 1st year of the term hereof; $5,417.00 per month for the 2nd year of the term hereof; $5,833.00 per month for the 3rd year of the term hereof; $6,250.00 per month for the 4th year of the term hereof; and $6,667.00 per month for the 5th year of the term hereof. All rents shall be due and payable on the 1st day of each and every month for the term hereof. The obligation to pay rent shall commence on January 25, 1985 and Tenant may take possession of the premises without the payment of rent from date of full execution (See by paragraph 32nd, **, for continuation). 2nd: The Tenant has examined the premises and has entered into this lease without any representation on the part of the Landlord as to the condition thereof. The Tenant shall take good care of the premises and shall at the Tenant's own cost and expense, make all repairs, including painting and decorating, and shall maintain the premises in good condition and state of repair, and at the end or other expiration of the term hereof, shall deliver up the rented premises in good order and condition, wear and tear form a reasonable use thereof, and damage by the elements not resulting from the neglect or fault of the Tenant, excepted. The Tenant shall neither encumber nor obstruct the sidewalks, driveways, yards, entrance, hallways and stairs, but shall keep and maintain the same in a clean condition, free from debris, trash, refuse, snow and ice. Landlord responsible for roof, building walls, but not overhead doors. 3rd: In case of the destruction of or any damage to the glass in the leased premises, or the destruction of or damage of any kind whatsoever to the said premises, caused by the carelessness, negligence or improper conduct on the part of the Tenant or the Tenant's agents, employees, guests, licensees, invitees, subtenants, assignees or successors, the Tenants shall repair the said damage or replace or restore any destroyed parts of the premises, as speedily as possible, at the Tenant's own cost and expense. 4th: No alterations, additions or improvements shall be made, and no climate regulating, air conditioning, cooling, heating or sprinkler systems, television or radio antennas, heavy equipment, apparatus and fixtures, shall be installed in or attached to the leased premises, without the written consent of the Landlord. Unless otherwise provided herein, all such alterations, additions or improvements and systems, when made, installed in or attached to the said premises, shall belong to and become the property of the Landlord and shall be surrendered with the premises and as part thereof upon the expiration or sooner termination of this lease, without hindrance, molestation or injury. Said written consent of Landlord shall not be unreasonably withheld or delayed. 5th: The Tenant shall not place nor allow to be placed any signs of any kind whatsoever, upon, in or about the said premises or any part thereof, except of a design and structure and in or at such places as may be indicated and consented to by the Landlord in writing. In case the Landlord or the Landlord's agents, employees or representatives shall deem it necessary to remove any such signs in order to paint or make any repairs, alterations or improvements in or upon said premises or any part thereof, they may be so removed, but shall be replaced at the Landlord's expense when the said repairs, alterations or improvements shall have been completed. Any signs permitted by the Landlord shall at all times conform with all municipal ordinances or other laws and regulations applicable thereto. 6th: The Tenant shall pay when due all the rents or charges for water, electric, heating, sewer, if any, and all other utilities used by the Tenant, which are or may be assessed or imposed upon the leased premises or which are or may be charged to the Landlord by the suppliers [ILLEGIBLE IN ORIGINAL DOCUMENT] 7th: The Tenant shall promptly comply with all laws, ordinances, rules, regulations, requirements and directives of the Federal, State and Municipal Governments or Public Authorities and of all their departments, bureaus and subdivisions, applicable to and affecting the said premises, their use and occupancy, for the correction, prevention and abatement of nuisances, violations or other grievances in, upon or connected with the said premises, during the term hereof; and shall promptly comply with all orders, regulations, requirements and directives of the Board of Fire Underwriters or similar authority and of any insurance companies which have issued or are about to issue policies of insurance covering the said premises and its contents, for the prevention of fire or other casualty, damage or injury, at the Tenant's own cost and expense. 8th: The Tenant, at Tenant's own cost and expense, shall obtain or provide and keep in full force for the benefit of the Landlord, during the term hereof, general public liability insurance, insuring the Landlord against any and all liability or claims of liability arising out of, occasioned by or resulting from any accident or otherwise in or about the leased premises, for injuries to any person or persons, for limits of not less than $1,000,000.00 for injuries to one person and $3,000,000.00 for injuries to more than one person, in any one accident or occurrence, and for loss or damage to the property of any person or persons, for not less than $100,000.00. The policy or policies of insurance shall be of a company or companies authorized to do business in this State and shall be delivered to the Landlord, together with evidence of the payment of the premiums therefor, not less than fifteen days prior to the commencement of the term hereof or of the date when the Tenant shall enter into possession, whichever occurs sooner. At least fifteen days prior to the expiration or termination date of any policy, the Tenant shall deliver a renewal or replacement policy with proof of the payment of the premium therefor. The Tenant also agrees to and shall save, hold and keep harmless and indemnify the Landlord from and for any and all payments, expenses, costs, attorney fees and from and for any and all claims and liability for losses or damage to property or injuries to persons occasioned wholly or in part by or resulting from any acts or omissions by the [TEXT MISSING FROM ORIGINAL DOCUMENT] hazardous, on account of fire or other casualty. 11th: This lease shall not be a lien against the said premises in respect to any mortgages that may hereafter be placed upon said premises. The recording of such mortgage or mortgages shall have preference and precedence and be superior and prior in lien to this lease, irrespective of the date of recording and the Tenant agrees to execute any instruments, without cost, which may be deemed necessary or desirable, to further effect the subordination of this lease to any such mortgage or mortgages. A refusal by the Tenant to execute such instruments shall entitle the Landlord to the option of canceling this lease, and the term hereof is hereby expressly limited accordingly. 12th: If the land and premises leased herein, or of which the leased premises are a part, or any portion thereof, shall be taken under eminent domain or condemnation proceedings, or if suit or other action shall be instituted for the taking or condemnation thereof, or if in lieu of any formal condemnation proceedings or actions, the Landlord shall grant an option to purchase and or shall sell and convey the said premises, or any portion thereof, to the governmental or other public authority, agency, body or public utility, seeking to take said land and premises or any portion thereof, then this lease, at the option of the Landlord, shall terminate, and the term hereof shall end as of such date as the Landlord shall fix by notice in writing; and the Tenant shall have no claim or right to claim or be entitled to any portion of any amount which may be awarded as damages or paid as the result of such condemnation proceedings or paid as the purchase price for such option, sale or conveyance in lieu of formal condemnation proceedings; and all rights of the Tenant to damages, if any, are hereby assigned to the Landlord. The Tenant agrees to execute and deliver any instruments, at the expense of the Landlord, as may be deemed necessary or required to expedite any condemnation proceedings or to effectuate a proper transfer of title to such governmental or other public authority, agency, body or public utility seeking to take or acquire the same lands and premises or any portion thereof. The Tenant covenants and agrees to vacate the said premises, remove all the Tenant's personal property therefrom and deliver upon peaceable possession thereof to the Landlord or to such other party designated by the Landlord in the aforementioned notice. Failure by the Tenant to comply with any provisions in this clause shall subject the Tenant to such costs, expenses, damages and losses as the Landlord may incur by reason of the Tenant's breach hereof. 13th: In case of fire or other casualty, the Tenant shall give immediate notice to the Landlord. If the premises shall be partially damaged by fire, the elements or other casualty, the Landlord shall repair the same as speedily as practicable, but the Tenant's obligation to pay the rent hereunder shall not cease. If, in the opinion of the Landlord, the premises be so extensively and substantially damaged as to render them untenantable, then the rent shall cease until such time as the premises shall be made tenantable by the Landlord. However, if, in the opinion of the Landlord, the premises be totally destroyed or so extensively and substantially damaged as to require practically a rebuilding thereof, then the rent shall be paid up to the time of such destruction and then and from thenceforth this lease shall come to an end. In no event, however, shall the provisions of this clause become effective or be applicable, if the fire or other casualty and damage shall be the result of the carelessness, negligence or improper conduct of the Tenant or the Tenant's agents, employees, guests, licensees, invitees, subtenants, assignees or successors. In such case, the Tenant's liability for the payment of the rent and the performance of all the covenants, conditions and terms hereof on the Tenant's part to be performed shall continue and the Tenant shall be liable to the Landlord for the damage and loss suffered by the Landlord. If the Tenant shall have been insured against any of the risks herein covered, then the proceeds of such insurance shall be paid over to the Landlord to the extent of the Landlord's costs and expenses to make the repairs hereunder, and such insurance carriers shall have no recourse against the Landlord for reimbursement. 14th: If the Tenant shall fail or refuse to comply with and perform any conditions and covenants of the within lease, the Landlord may, if the Landlord so elects, carry out and perform such conditions and covenants, at the cost and expense of the Tenant, and the said cost and expense shall be payable on demand, or at the option of the Landlord shall be added to the installment of rent due immediately thereafter but in no case later than one month after such demand, whichever occurs sooner, and shall be due and payable as such. This remedy shall be in addition to such other remedies as the Landlord may have hereunder by reason of the breach by the Tenant of any of the covenants and conditions in this lease contained. 15th: The Tenant agrees that the Landlord and the Landlord's agents, employees or other representatives, shall have the right to enter into and upon the said premises or any part hereof, at all reasonable hours, for the purpose of examining the same or making such repairs or alterations therein as may be necessary for the safety and preservation thereof. This clause shall not be deemed to be a covenant by the Landlord nor be construed to create an obligation on the part of the Landlord to make such inspection or repairs. 16th: The Tenant agrees to permit the Landlord and the Landlord's agents, employees or other representatives to show the premises to persons wishing to rent or purchase the same, and Tenant agrees that on and after six (6) months next preceding the expiration of the term hereof, the Landlord or the Landlord's agents, employees or other representatives shall have the right to place notices on the front of said premises or any part thereof, offering the premises for rent or for sale; and the Tenant hereby agrees to permit the same to remain thereon without hindrance or molestation. 17th: If for any reason it shall be impossible to obtain fire and other hazard insurance on the buildings and improvements on the leased premises, in an amount and in the form and in insurance companies acceptable to the Landlord, the Landlord may, if the Landlord so elects at any time thereafter, terminate this lease and the term hereof, upon giving to the Tenant fifteen days notice in writing of the Landlord's intention so to do, and upon the giving of such notice, this lease and the term thereof shall terminate. If by reason of the use to which the premises are put by the Tenant or character of or the manner in which the Tenant's business is carried on, the insurance rates for fire and other hazards shall be increased, the Tenant shall upon demand, pay to the Landlord, as rent, the amounts by which the premises for such insurance are increased. Such payment shall be paid with the next installment of rent but in no case later than one month after such demand, whichever occurs sooner. 18th: Any equipment, fixtures, goods or other property of the Tenant, not removed by the Tenant upon the termination of this lease, or upon any quitting, vacating or abandonment of the premises by the Tenant, or upon the Tenant's eviction shall be considered as abandoned and the Landlord shall have the right, without any notice to the Tenant, to sell or otherwise dispose of the same, at the expense of the Tenant, and shall not be accountable to the Tenant for any part of the proceeds of such sale, if any. 19th: If there should occur any default on the part of the Tenant in the performance of any conditions and covenants herein contained, or if during the term hereof the premises of any part thereof shall be or become abandoned or deserted, vacated or vacant, or should the Tenant be evicted by summary proceedings or otherwise, the Landlord, in addition to any other remedies herein contained or as may be permitted by law, may either by force or otherwise, without being liable for prosecution therefor, or for damages, re-enter the said premises and the same have and again possess and enjoy; and as agent for the Tenant or otherwise, re-let the premises and receive the rents therefor and apply the same, first to the payment of such expenses, reasonable attorney fees and costs, as the landlord may have been put to in re-entering and repossessing the same and in making such repairs and alterations as may be necessary; and second to the payment of the rents due hereunder. The Tenant shall remain liable for such rents as may be in arrears and also the rents as may accrue subsequent to the re-entry by the Landlord, to the extent of the difference between the rents reserved hereunder and the rents, if any, received by the Landlord during the remainder of the unexpired term hereof, after deducting the aforementioned expenses, fees and costs; the same to be paid as such deficiencies arise and are ascertained each month. 20th: Upon the occurrence of any of the contingencies set forth in the preceding clause, or should the Tenant be adjudicated in bankrupt, insolvent or placed in receivership, or should proceedings be instituted by or against the Tenant for bankruptcy, insolvency, receivership, agreement of composition or assignment for the benefit of creditors, or if this lease or the estate of the Tenant hereunder shall pass to another by virtue of any court proceedings, writ of execution, levy, sale, or by operation of law, the Landlord may, if the Landlord so elects, at any time thereafter, terminate this lease and the term hereof, upon giving to the Tenant [ILLEGIBLE IN ORIGINAL DOCUMENT] custodian of the assets or property of the Tenant, five days notice in writing, of the Landlord's intention so to do. Upon the giving of such notice, this lease and the term hereof shall end on the date fixed in such notice as if the said date was the date originally fixed in this lease for the expiration hereof; and the Landlord shall have the right to remove all persons, goods, fixtures and chattels therefrom, by force or otherwise, without liability for damages. 21st: The Landlord shall not be liable for any damage or injury which may be sustained by the Tenant or any other person, as a consequence of the failure, breakage, leakage or obstruction of the water, plumbing, steam, sewer, waste or soil pipes, roof, drains, leaders, gutters, valleys, downspouts or the like or of the electrical, gas, power, conveyor, refrigeration, sprinkler, airconditioning or heating systems, elevators or hoisting equipment; or by reason of the elements; or resulting from the carelessness, negligence or improper conduct on the part of any other Tenant or of the Landlord or the Landlord's or this or any other Tenant's agents, employees, guests, licensees, invitees, subtenants, assignees or successors; or attributable to any interference with, interruption of or failure, beyond the control of the landlord, of any services to be furnished or supplied by the Landlord. 22nd: The various rights, remedies, options and elections of the Landlord, expressed herein, are cumulative, and the failure of the Landlord to enforce strict performance by the Tenant of the conditions and covenants of this lease or to exercise any election or option, or to resort or have recourse to any remedy herein conferred or the acceptance by the Landlord of any installment of rent after any breach by the Tenant, in any one or more instances, shall not be construed or deemed to be a waiver or a relinquishment for the future by the Landlord of any such conditions and covenants, options, elections or remedies, but the same shall continue in full force and effect. [TEXT MISSING FROM ORIGINAL DOCUMENT] or other casualty loss or because of strikes or other labor trouble or for any cause beyond the control of the Landlord. 24th: The terms, conditions, covenants and provisions of this lease shall be deemed to be severable. If any clause or provision herein contained shall be adjudged to be invalid or unenforcable by a court of competent jurisdiction or by operation of any applicable law, it shall not affect the validity of any other clause or provision herein, but such other clauses or provisions shall remain in full force and effect. 25th: All notices required under the terms of this lease shall be given and shall be complete by mailing such notices by certified or registered mail, return receipt requested, to the address of the parties as shown at the head of this lease, or to such other address as may be designated in writing, which notice of change of address shall be given in the same manner. 26th: The Landlord covenants and represents that the Landlord is the owner of the premises herein leased and has the right and authority to enter into, execute and deliver this lease; and does further covenant that the Tenant on paying the rent and performing the conditions and covenants herein contained, shall and may peaceable and quietly have, hold and enjoy the leased premises for the term aforementioned. 27th: This lease contains the entire contract between the parties. No representative, agent or employee of the Landlord has been authorized to make any representations or promises with reference to the within letting or to vary, alter or modify the terms hereof. No additions, changes or modifications, renewals or extensions hereof, shall be binding unless reduced to writing and signed by the Landlord and the Tenant. 30th: If any mechanics' or other liens shall be created or filed against the leased premises by reason of labor performed or materials furnished for the Tenant in the erection, construction, completion, alteration, repair or addition to any building or improvement, the Tenant shall within five days thereafter, at the Tenant's own cost and expense, cause such lien or liens to be satisfied and discharged of record together with any Notices of Intention that may have been filed. Failure so to do, shall entitle the Landlord to resort to such remedies as are provided herein in the case of any default of this lease, in addition to such as are permitted by law. 31st: The Tenant waives all rights of recovery against the Landlord or Landlord's agents, employees or other representatives, for any loss, damages or injury of any nature whatsoever to property or persons for which the Tenant is insured. The Tenant shall obtain from the Tenant's insurance carriers and will deliver to the Landlord, waivers of the subrogation rights under the respective policies. 32nd: The Tenant has this day deposited with the landlord the sum of $10,000.00 as security for the payment of the rent hereunder and the full and faithful performance by the Tenant of the covenants and conditions on the part of the Tenant to be performed. Said sum shall be returned to the Tenant, without interest, after the expiration of the term hereof, provided that the Tenant has fully and faithfully performed all such covenants and conditions and is not in arrears in rent. During the term hereof, the Landlord may, if the Landlord so elects, have recourse to such security, to make good any default by the Tenant, in which event the Tenant shall, on demand, promptly restore said security to its original amount. Liability to repay said security to the Tenant shall run with the reversion and title to said premises, whether any change in ownership thereof be by voluntary alienation or as the result of judicial sale, foreclosure or other proceedings, or the exercise of a right of taking or entry by any mortgagee. The Landlord shall assign or transfer said security, for the benefit of the Tenant, to any subsequent owner or holder of the reversion or title to said premises, in which case the assignee shall become liable for the repayment thereof as herein provided, and the assignor shall be deemed to be released by the Tenant from all liability to return such security. This provision shall be applicable to every alienation or change in title and shall in no wise be deemed to permit the Landlord to retain the security after termination of the Landlord's ownership of the reversion or title. The Tenant shall not mortgage, encumber or assign said security without the written consent of the Landlord. **(CONTINUATION FROM PARAGRAPH 1st): hereof, payment of the 1st month's rent and payment of the security deposit. Tenant's obligation to pay its proportionate share of taxes, insurance and all utilities, as herein provided, shall, however, commence on date of occupancy. (SEE RIDER ATTACHED HERETO AND FORMING A PART HEREOF FOR ADDITIONAL PROVISIONS) The Landlord may pursue the relief or remedy sought in any invalid clause, by conforming the said clause with the provisions of the statutes or the regulations of any governmental agency in such case made and provided as if the particular provisions of the applicable statutes or regulations were set forth herein at length. In all references herein to any parties, persons, entities or corporations the use of any particular gender or the plural or singular number is intended to include the appropriate gender or number as the text of the within instrument may require. All the terms, covenants and conditions herein contained shall be for and shall inure to the benefit of and shall bind the respective parties hereto, and their heirs, executors, administrators, personal or legal representatives, successors and assigns. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals, or caused these presents to be signed by their proper corporate officers and their proper corporate seal to be hereto affixed, the day and year first above written. SIGNED, SEALED AND DELIVERED HOLLYWOOD COURT ASSOCIATES IN THE PRESENCE OF (Landlord) OR ATTESTED BY [ILLEGIBLE] By:___________________________________ ABLE LABORATORIES, INC. ________________________________ __________________________________ Tenant [ILLEGIBLE] By:___________________________________ President RIDER ATTACHED TO AND FORMING A PART OF LEASE AGREEMENT Between HOLLYWOOD COURT ASSOCIATES, as Landlord, and ABLE LABORATORIES, INC., as Tenant 33rd: Notwithstanding the terms of the lease to which this Rider is annexed, the terms of this Rider shall control. Except as amended by the terms of this Rider, the provisions of the lease shall otherwise remain in full force and effect. 34th: Anything in this lease to the contrary notwithstanding, it is expressly understood and agreed that Tenant shall pay, as additional rent, a proportionate share of all ad valorem real estate taxes including, but not limited to, assessments assessed against the land and improvements leased hereunder, or of which the leased premises are a part, for each month of the lease term. Tenant's proportionate share is now agreed to be 50% Said additional payments shall be made monthly. If, at any time the taxes for the year can only be estimated, then the monthly payments shall be based upon Landlord's estimate until the taxes are determined, at which time an appropriate adjustment shall be made. For the tax year in which this lease commences and terminates, Tenant's liability shall be prorated based upon the number of months during which Tenant is obligated to occupy the leased premises. If at any time during the term of this lease the method or scope of taxation prevailing at the commencement of the lease term shall be altered, modified or enlarged so as to cause the method of taxation to be changed, in whole or in part, so that in substitution for the real estate taxes now assessed there may be, in whole or in part, a capital levy or other imposition based on the value of the premises, or the rents received therefrom, or some other form of assessment based in whole or in part on some other valuation of Landlord's real property comprising the demised premises, then and in such event, Tenant shall also pay a proportionate share, as above .defined, of such substituted tax or imposition. The proportionate share shall be paid in monthly installments, which are estimated by Landlord, if necessary, with subsequent adjustment when the actual amount is determined and with pro-ration in the year in which this lease commences and terminates. Tenant shall pay as additional rent Tenant's proportionate share of the premiums for a special multi-peril insurance policy upon the subject premises which shall include coverages for fire, perils of extended coverage, perils of additional extended coverage, rental value, and the like, which said policy shall contain coverages determined by Landlord, in amounts to be determined by Landlord, and in companies to be determined by Landlord. Landlord shall advise Tenant of its proportionate share and Tenant shall pay the same upon demand by Landlord. 35th: Tenant acknowledges that it has inspected the premises and accepts the same in an "as is" condition, without any obligation of Landlord to make any repairs or improvements. Tenant acknowledges that it will, at its own cost and expense, undertake to make any and all alterations to the leased premises 1 which it may require, provided Tenant shall obtain the prior approval of Landlord in writing in the event of any additions of alterations to the leased premises, which consent Landlord shall not unreasonably withhold or delay provided that the proposed plan is in compliance with the applicable governmental rules and regulations of boards and bureaus; having jurisdiction thereof, and provided further that such plan does not affect the structural integrity of the leased premises, nor diminish existing utility services. It is specifically a condition of the within lease and it shall be the obligation of Tenant, within three (3) days after demand by Landlord, to construct the partition wall separating the within demised premises from the premises demised to others and to seal three (3) doors in connection therewith. This work shall be performed at Tenant's own cost and expense, not to exceed $3,000.00, and should the cost thereof exceed $3,000.00 Landlord shall be responsible to pay the excess cost, if any, but Landlord must approve contract. 36th: Tenant covenants and agrees that it will, at its own cost and expense, obtain any and all Certificates of occupancy, licenses, permits or any other consents as may be required in connection with the installation of Tenant's improvements as herein-above referred to, and as may be required in connection with the operation of the leased premises for the lease purposes. Lease subject to C. of O. 37th: The within lease is subject to the right on the part of Landlord to promulgate reasonable rules and regulations regarding the subject premises from time to time, and Tenant covenants and agrees to comply therewith. 38th: (a) All provisions herein contained shall bind and inure to the benefit of the respective parties hereto, their heirs, personal representatives, successors and assigns. In the event Landlord or any successor-owner of the demised premises shall convey or otherwise dispose of the demised premise and/or the building of which the demised premises form a part, all liabilities and obligations of Landlord or such successor-owner as Landlord under this lease shall terminate upon such conveyance or disposal and written notice thereof given to Tenant. However, said lease shall remain valid and subsisting, pursuant to the terms contained herein regardless of such conveyance or disposal. (b) If Landlord, or any successor in interest to Landlord shall be an individual, joint venturer, tenancy-in-common, trustee, firm or partnership, general or limited, there shall be no personal liability on the part of such individual or on the members of such joint venture; tenancy-in-common, trustee, firm or partnership, in respect to any of the covenants or conditions of this lease. Tenant hereby acknowledges that it shall look solely to the equity of Landlord in the building for the satisfaction or assertion of the remedies of Tenant against Landlord, in the event of breach by Landlord or any of the covenants or conditions of this lease. Tenant shall litigate 2 any claim which it is unable to resolve with Landlord and shall not make any deduction from the rent; additional rent or other charges due hereunder on account of any claim. 39th: Tenant agrees that it will execute such factual statements as may be required by Landlord upon reasonable notice indicating that the lease is in full force and effect and rent has been paid up to date, and such other statements as may be required by Landlord or Landlord's mortgagee, in order to establish the validity of the lease and that there are no claims or setoffs by Tenant against Landlord in connection with the within lease. It is intended that any such statement delivered pursuant to this Paragraph may be relied upon by any respective purchaser or mortgagee or assignee of any mortgage upon the demised premises. 40th: Tenant shall have the right and obligation to remove its trade fixtures, humidity control system and equipment at the expiration of the lease term and Tenant shall be responsible to repair any damage caused to the leased premises by the removal of the aforesaid trade fixtures, humidity control systems and equipment. Notwithstanding the terms and conditions hereof, should Tenant be in default under the terms and conditions of this lease, Tenant shall not have the right to remove its trade fixtures and equipment and the same shall remain at the demised premises as additional collateral security for the performance of Tenant's obligations under this lease. 41st: Landlord reserves the right to place, maintain and repair such utility lines, pipes, tunneling, and the like, in the interior and over the exterior of the demised premises as may be reasonable and necessary to service the, whole building of which the demised premises are a part. 42nd: Landlord and Tenant acknowledge that Tamburro Realty Co. and Sholom & Zuckerbrot are the sole real estate brokers who negotiated and consummated the within lease, and Tenant warrants and represents that it has dealt with no other broker and will indemnify, defend and save harmless Landlord from claims of any other broker who establishes that he acted for or on behalf of Tenant. 43rd: In addition to any other remedy, a five (5%) percent "Late Charge" shall be due and payable on any portion of rent or other charges not paid by the fifth day after they fall due. An Additional late charge shall be added for each additional five (5) day delinquency. These charges are liquidated damages for the added costs incurred by Landlord. However, the late charges set forth herein shall not be imposed nor be due and payable unless in any one particular lease year, Tenant shall have been more than five (5) days late on two occasions in making any of the payments due under this lease. 44th: Tenant shall, at Tenant's own expense, comply with the Environmental Cleanup Responsibility Act, N.J.S.A. 13:1K-6, et seq ("the Act"), and all regulations promulgated pursuant to the Act. Tenant shall, at Tenant's own expense, provide all information within Tenant's control requested by Landlord or the Bureau of Industrial Site Evaluation for the 3 preparation of submissions, declarations, reports and plans pursuant to the Act. If the New Jersey Department of Environmental Protection (DEP) shall determine that a cleanup plan he prepared and that a cleanup be undertaken because of any spills or discharges of hazardous substances or wastes at the premises which occur during the term of this lease, then Tenant shall, at Tenant's own expense, prepare and submit the required plans and carry out the approved plans. Tenant shall indemnify, defend and save harmless Landlord from all fines, suits, procedures,. claims and actions of any kind arising out of or in any way connected with any spills or discharges of hazardous substances or wastes at the premises which occur during the term of this lease. Tenant's obligations and liability under this Paragraph shall survive the term of this lease and shall continue so long as Landlord remains responsible for any spills or discharges of hazardous substances or wastes at the premises which occur during the term of this lease. 45th: If any term or provision of this lease or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this lease or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this lease shall be valid and be enforced to the fullest extent permitted by law. 46th: With reference to Paragraph 32nd of this lease, the initial security deposit shall be increased annually as each rent increase increment takes effect so that in any one given lease year Landlord shall have on hand a security deposit equivalent to no less than two (2) months of the monthly rental then payable during said lease year. 47th: Upon execution of this lease the security deposit required hereunder and the first month's rent in advance shall be paid. Adjusted Rent for the month of February 1985 shall be due and shall be due and payable now on execution in an amount equal to $986.30. Commencing March 1, 1985, and monthly thereafter, the full monthly rental as provided herein shall be due and payable on the first day of each and every month during the term of this lease, in advance. 48th: It shall be the obligation of Landlord to have the heating and air conditioning systems in proper operating condition at time of commencement of possession by Tenant hereunder. Thereafter, the repair, maintenance and replacement of said. systems is the obligation of Tenant and any replacements made to said systems shall not be removable by Tenant at the expiration of this lease and shall become the property of Landlord. 49th: Tenant shall have the right to erect a shed outside of the demised building and in connection therewith shall comply with, at its own cost and expense, any and all applicable Federal, State, County or Municipal laws, regulations and ordinances covering the location, size, appearance and use thereof. Nothing contained herein, however, shall permit the erection of said shed except as in conjunction with the uses permitted under this lease. 4 50th: With respect to Paragraph 9th of this lease, should Landlord consent to any assignment, subletting or under-letting of this lease and should the amount of rent under any such assignment, sublet or underlet be in excess of the rent payable under this lease, said excess rental shall be the property of Landlord and shall be due and payable to Landlord. 51st: Without reduction in the rental due hereunder, Landlord shall, during the term of this lease, have the right to remove one transformer from the demised premises. 52nd: Without reduction in the rental due hereunder, there is excluded from the provisions of this lease and is not a part of the demised premises, either the Executive Office in front of the building or the Computer Room in the rear of the building, and Landlord, during the term of the lease, shall designate which of said areas is excluded from the lease and not a part of the demised premises. 53rd: Wherever there is an obligation under the terms of this lease for Tenant to pay its pro rata share of taxes, common expenses, and the like, Tenant's pro rata share shall be 50% of the cost thereof. In that connection, the parking lot shall be available to Tenant on a nonexclusive basis in common with other tenants, and Tenant shall have the right to use 50% of the parking spaces in connection with the operation of its business. Landlord reserves the right to stripe the parking lot, if not already done, and to assign parking spaces among the tenants, but in no event shall Tenant be entitled to less than 50% of the parking spaces. 54th: Tenant shall have the right to renew this lease for an additional period of five (5) years from its expiration date, provided: (a) Tenant shall exercise this option by notifying Landlord of its intention to so renew at least six (6) months prior to the expiration of the within lease; and (b) Tenant is not then in default and does not thereafter default before the extension period of this lease becomes effective. During the renewal period of this lease all of the terms and conditions of the original lease shall remain in full force and effect except that the rent for the first 2 1/2 years during the extension period shall be payable at the rate of $98,000.00 per year, payable in equal monthly installments of $8,167.00 per month'. in advance; and during the remaining 2 1/2 years during the extension period the rent shall be payable at the rate of $117,600.00 per year, payable in equal monthly installments of $9,750.00 per month, in advances During the first 2 1/2 years of the renewal period the security deposit shall be increased to the sum of $16,334.00, and shall be increased during the remaining 2 1/2 year renewal period to the sum of $19,500.00. 55th: The parties agree that Tenant's present contributions on account of insurance coverage, as provided in Paragraph 5 34th hereof, is for the present policy period the sum of $728.00. Landlord represents that the sprinkler system is in working order as of the date hereof. 56th: Landlord will attempt to notify Tenant in the event Landlord elects to sell the premises. It is understood and agreed, however, that this notice is gratuitous on the part of Landlord and that there shall be no liability upon Landlord in the event of Landlord's failure to provide the aforesaid notice to Tenant. 57th: Tenant acknowledges its awareness of the fact that there is only one (1) water meter and one (1) oil tank for the entire building of which the demised premises forms a part. Until such time as Landlord has rented the balance of the premises, Tenant shall pay 75% of the charges for heating and for water and fire service, all as also provided in Paragraph 6th hereof. At such time as Landlord shall have rented the balance of the building, of which the demised premises forms a part, then and in that event Tenant shall pay 50% of the charges for heating and water service to the entire building. These payments shall be made to Landlord on a monthly basis as additional rent. Landlord reserves the right, in the future, to install an additional oil tank and an additional water meter to service only the demised premises, at which time Tenant shall pay 100% of the aforesaid charges for the demised premises. 6 EX-10.T 7 SPACE EXPANSION AGREEMENT EXHIBIT 10t SPACE EXPANSION AND TERM EXTENSION AGREEMENT DATE: APRIL , 1988 LANDLORD: HOLLYWOOD COURT ASSOCIATES A New Jersey Partnership 2029 Morris Avenue Union, New Jersey 07083 TENANT: ABLE LABORATORIES, INC. A New Jersey Corporation 6 Hollywood Court South Plainfield, New Jersey 07080 EXISTING PREMISES: 26,000 square feet of gross building space Lot 5C, Block 390 6 Hollywood Court South Plainfield, New Jersey 07080 ADDITIONAL PREMISES: 6,800 square feet of building space Lot 5C, Block 390 6 Hollywood Court South Plainfield, New Jersey 07080 PRIOR AGREEMENT Lease dated November 29, 1984 Letter Agreement dated March 5, 1986 - -------------------------------------------------------------------------------- The Landlord and the Tenant hereby agree to the terms of this Space Expansion and Term Extension Agreement. 1. The Tenant is presently renting approximately 26,000 square feet of gross space at the Premises, designated "Existing Space" on the plan attached hereto as "Exhibit A". 2. Effective April 15, 1988, through the end of the Term on January 24, 1990, the Tenant shall rent an additional area comprised of approximately 6,800 square feet of gross space at the Premises designated as "Additional Space" on the plan attached hereto as "Exhibit A". 3. Beginning as of April 15, 1988 through March 31, 1989, the Tenant shall pay $2,028.67 per month as base net rent for the Additional Premises. Beginning April 1, 1989 through March 31, 1990, the Tenant shall pay $2,164.67 per month as base net rent for the Additional Premises. 4. The Term of the Lease for the entire Premises shall be extended for a period of five (5) years beginning as of April 1, 1990 and ending on March 31, 1995. 5. The base, net rent for the entire Premises comprised of approximately 32,800 gross square feet of space shall be $12,764.67 per month for the period beginning as of April 1, 1990 through March 31, 1995. 6. Beginning as of April 15, 1988, through and including March 31, 1995, the Tenant shall pay additional rent under the terms of the Lease for the entire Premises which shall be deemed to comprise 78.1% of the entire square footage of the building in which the Premises are located. 7. The terms of the 54th Paragraph of the Lease as amended by the terms of the Letter Agreement shall be void and shall have no further effect, except that the Tenant shall increase its security deposit to $20,254.00 by April 1, 1990 and to $24,180.00 by October 1, 1992. 8. Except as specifically set forth herein, all of the other terms of the prior agreements shall remain in effect and shall apply to the Additional Premises. 9. This Space Expansion and Term Extension Agreement binds the Landlord, the Tenant, and all parties who lawfully succeed to their rights or take their places. 10. The parties have read this Space Expansion and Term Extension Agreement, and it contains their full agreement. This Space Expansion and Term Extension Agreement may not be changed except by written agreement signed by the Landlord and the Tenant. HOLLYWOOD COURT ASSOCIATES [Illegible] By:______________________________ ABLE LABORATORIES, INC. [Illegible] By:_______________________________ EX-10.U 8 ASSIGNMENT OF LEASE EXHIBIT 10u ASSIGNMENT OF LEASE(S) KNOW ALL MEN BY THESE PRESENTS, this for value received, the undersigned does hereby assign, transfer, convey and set over unto CVN ASSOCIATES L.P., a New Jersey limited partnership, all of the right, title and interest of the undersigned in and to a certain Lease Agreement between HOLLYWOOD COURT ASSOCIATES, as Landlord, and ABLE LABORATORIES, INC. , as Tenant, which Lease Agreement is dated November 29, 1984, and which Lease commenced on January 25, 1985 and is for a term of five (5) years, for premises known as 6 Hollywood Court, South Plainfield, Middlesex County, New Jersey. IN WITNESS WHEREOF, the undersigned has hereunto set its hand and seal this 4th day of April, 1989. WITNESS: HOLLYWOOD COURT ASSOCIATES /s/ Ernest Lebowitz /s/ Jacob Burstyn _______________________________ By: ______________________________ Ernest Lebowitz Jacob Burstyn, General Partner By: Markwest Partners Limited, General Partner /s/ Jesse S. Weissberg By:___________________________ Jesse S. Weissberg, Authorized Partner EX-10.V 9 SPACE EXPANSION AGREEMENT EXHIBIT 10v SPACE EXPANSION AGREEMENT DATE: JUNE, 1993 LANDLORD: CVN ASSOCIATES, L.P. A New Jersey Limited Partnership 300 Raritan Center Parkway, P.O. Box 7815 Edison, New Jersey 08818-7815 TENANT: ABLE LABORATORIES, INC. A New Jersey Corporation 6 Hollywood Court South Plainfield, New Jersey 07080 EXISTING PREMISES: Approximately 32,800 square feet of gross space located within Lot 5C, Block 390 6 Hollywood Court South Plainfield, New Jersey ADDITIONAL PREMISES: Referenced on "Exhibit A" Approximately 9,200 square feet of gross space located within Lot 5C, Block 390 6 Hollywood Court South Plainfield, New Jersey TOTAL BASE NET RENT FOR For the period commencing with the date THE COMBINATION OF THE of delivery of the Additional Premises EXISTING PREMISES AND through March 31, 1995 $16,345.00 per THE ADDITIONAL PREMISES: month. TOTAL PERCENTAGE OF 100% of the total additional rent ADDITIONAL RENT FOR THE expenses for the Building which contains COMBINATION OF THE the Premises as defined in the Prior EXISTING PREMISES AND Agreements. THE ADDITIONAL PREMISES: PRIOR AGREEMENT(S) IN EFFECT: Lease dated November 29, 1984 Space Expansion and Term Extension Agreement dated April, 1988 Assignment of Lease dated April, 1989 - -------------------------------------------------------------------------------- The Landlord and the Tenant hereby agree to the terms of this Agreement. 1. The Tenant is presently occupying the Existing Premises under the terms of the Lease. 2. Effective upon the date of the delivery of the Additional Premises of the Tenant through March 31, 1995, the Tenant shall rent additional area comprised of approximately 9,200 square feet of gross space at the Premises designated as "Additional Premises" referenced on "Exhibit A". 1 of 2 3. For the period commencing with the date of the delivery of the Additional Premises through March 31, 1995, the Tenant shall pay total base net rent set forth above and the total percentage of additional rent expenses as defined in the Prior Agreements for the combination of the Existing Premises and the Additional Premises. 4. The Landlord at the Tenant's expense, shall coordinate the relocation of the tenant, Caputo International, Inc., currently occupying the Additional Premises. The Landlord anticipates that the relocation shall be effected within ten (10) weeks of the complete execution of this Agreement. The Tenant shall reimburse the Landlord for costs incurred by the Landlord in the relocation of the existing tenant, Caputo International, Inc. from the Additional Premises. Such costs are stipulated between Caputo International, Inc. and the Landlord to be $150,000.00. The Tenant shall pay this amount to the Landlord in the following manner: a. $50,000.00 upon the execution of this Agreement; b. $50,000.00, within (60) days after the date of execution of this Agreement, and c. $50,000.00 upon delivery of the Additional Premises. 5. Except as specifically set forth herein, all of the. other terms of the Prior Agreement(s) shall remain in effect and shall apply to the "Additional Premises". 6. This Agreement binds the Landlord and all parties which rightfully succeed to its rights or take its place. This Agreement binds the Tenant and all parties which rightfully succeed to its rights or take its place with the Landlord's consent in accordance with the terms of the Lease. 7. This Agreement contains the entire agreement made by the Landlord and the Tenant. The terms of this Agreement shall not be changed or amended, except by the terms of a subsequent written agreement signed by the Landlord and the Tenant. WITNESS/ATTEST: LANDLORD/CVN ASSOCIATES, L.P. By: CVN Associates, Inc. Corporate General Partner [Illegible] /s/ Gilbert H. Nelson By:_______________________________ By:__________________________________ Gilbert H. Nelson, Vice President WITNESS/ATTEST: TENANT/ABLE LABORATORIES, INC. [Illegible] /s/ Robert Pudlak By:_______________________________ By:__________________________________ Robert Pudlak Sr. V.P. Finance & Admin. 2 of 2 EXHIBIT A TO SPACE EXPANSION AGREEMENT BETWEEN CVN ASSOCIATES, L.P. AND ABLE LABORATORIES, INC. The Premises and the specifications related thereto are shown on the plan(s) entitled 6 HOLLYWOOD COURT PLAN, prepared by David Cochran, dated June 8, 1988, with the latest revision date of August 26, 1988. EX-10.W 10 TERM EXTENSION AGREEMENT EXHIBIT 10w TERM EXTENSION AGREEMENT DATE: JUNE, 1993 LANDLORD: CVN ASSOCIATES, L.P. A New Jersey Limited Partnership 300 Raritan Center Parkway, P.O. Box 7815 Edison, New Jersey 08818-7815 TENANT: ABLE LABORATORIES, INC. A New Jersey Corporation 6 Hollywood Court South Plainfield, New Jersey 07080 EXISTING PREMISES: Approximately 42,000 square feet of gross space Approximately 3,840 square feet of gross area of mezzanine located within Lot 5C, Block 390 6 Hollywood Court South Plainfield, New Jersey TERM EXTENSION PERIOD: Five (5) years Beginning Date: April 1, 1995 Ending Date: March 31, 2000 TOTAL BASE NET RENT FOR $21,965.00 per month. THE EXISTING PREMISES FOR THE TERM EXTENSION PERIOD: TOTAL PERCENTAGE OF 100% of the total additional rent expenses ADDITIONAL RENT FOR THE for the Building which contains the Premises EXISTING PREMISES FOR THE as defined in th Prior Agreements. TERM EXTENSION PERIOD: PRIOR AGREEMENT(S) IN EFFECT: Lease dated November 29, 1984 Space Expansion and Term Extension Agreement dated April, 1988 Assignment of Lease dated April, 1989 Space Expansion Agreement dated June, 1993 The Landlord and the Tenant hereby agree to the terms of this Agreement. 1. The Term of the Lease shall be extended for the Term Extension Period set forth above. 2. For the period April 1, 1995 through March 31, 2000, the Tenant shall pay total base net rent and the total percentage of additional rent expenses set forth above. 3. Except as specifically set forth herein, all of the. other terms of the Prior Agreement(s) shall remain in effect and shall apply to the "Additional Premises". 4. This Agreement binds the Landlord and all parties which rightfully succeed to its rights or take its place. This Agreement binds the Tenant and all parties which rightfully succeed to its rights or take its place with the Landlord's consent in accordance with the terms of the Lease. 5. This Agreement contains the entire agreement made by the Landlord and the Tenant. The terms of this Agreement shall not be changed or amended, except by the terms of a subsequent written agreement signed by the Landlord and the Tenant. WITNESS/ATTEST: LANDLORD/CVN ASSOCIATES, L.P. By: CVN Associates, Inc. Corporate General Partner [Illegible] /s/ Gilbert H. Nelson By:_______________________________ By:_________________________________ Gilbert H. Nelson, Vice President WITNESS/ATTEST: TENANT/ABLE LABORATORIES, INC. [Illegible] /s/ Robert Pudlak By:_______________________________ By:__________________________________ Robert Pudlak Sr. V.P. Finance & Administration EX-10.X 11 ASSIGNMENT OF LEASE EXHIBIT 10x ASSIGNMENT OF LEASE Able Laboratories, Inc., a New Jersey corporation ("Assignor"), and Able Acquisition Corp., a Delaware corporation ("Assignee"), enter into this Assignment as of August 19, 1996 (the "Effective Date"). Preliminary Statement Assignor is the tenant of the entire building at 6 Hollywood Court, South Plainfield, New Jersey (the "Premises"), under a Lease Agreement dated November 29, 1984, between Hollywood Court Associates, a New Jersey partnership ("Original Landlord"), and Assignor, as amended by Space Expansion and Term Extension Agreement dated April, 1988, between Original Landlord and Assignor, as further amended by Space Expansion Agreement dated June, 1993, between CVN Associates, L.P., a New Jersey limited partnership ("Landlord"), and Assignor (said Lease Agreement, as so amended, the "Lease"). Original Landlord assigned its right, title and interest in and to the Lease to Landlord by Assignment of Lease dated April, 1989. Assignor wishes to assign its rights, interests and obligations under the Lease to Assignee, and Assignee wishes to accept such assignment and assume such obligations, on the terms and conditions of this Assignment. Agreement For valuable consideration, the receipt and sufficiency of which Assignor and Assignee acknowledge, Assignor and Assignee agree as follows: 1. Assignment and Assumption. Assignor hereby assigns all of its rights, interests and obligations under the Lease, except as set forth in Paragraph 3 of this Assignment, and all of its title and interest in the Premises to Assignee, and Assignee hereby accepts such assignment and assumes all of the obligations of Assignor under the Lease. Assignor acknowledges for the benefit of Landlord that, notwithstanding such assignment and assumption and the consent of Landlord to such assignment and assumption, Assignor remains fully liable to Landlord for the full and timely payment of all financial obligations and the full and timely performance of all other obligations of the tenant under the Lease. 2. Indemnities. Assignor shall indemnify, defend and hold harmless Assignee from all claims, liabilities, damages, losses, costs and expenses resulting from a breach or default of the obligations of the tenant under the Lease arising or occurring before the Effective Date or relating to Assignor's use and occupancy of the Premises before the Effective Date. Assignee shall indemnify, defend and hold harmless Assignor from and against all claims, liabilities, damages, losses, costs and expenses resulting from a breach or default of the obligations of the tenant under the Lease arising or occurring on or after the Effective Date or relating to Assignee's use or occupancy of the Premises on or after the Effective Date. If any payments of rent, additional rent or other charges due -2- under the Lease relate to a period which includes time both before and after the Effective Date, any such payment shall be prorated according to the fractions of the total number of days in such period occurring, respectively, before and after the Effective Date. Assignor shall pay the prorated portion of any such payment relating to the fractional period before the Effective Date, and Assignee shall pay the prorated portion of any such payment relating to the fractional period on and after the Effective Date. 3. Security Deposit. Assignor does not hereby assign its rights and interest in the security deposit held by Landlord under Paragraph 32nd of the Lease, which security deposit shall remain Assignor's property. Assignee shall deliver to Assignor the sum of $65,895 (the "Security Deposit") as security for the full and timely payment and performance of Assignee's obligations under the Lease and this Assignment. If Assignee fails to pay or perform in a full and timely manner any of its obligations under the Lease and this Assignment and such failure continues after the giving of any required notice and the expiration of any applicable grace period, Assignor may apply all or any portion of the Security Deposit toward curing any such failure and compensating Assignor for any loss, damage or expenses arising from such failure. If Assignor so applies any portion of the Security Deposit, Assignee shall immediately pay to Assignor the amount necessary to restore the Security Deposit to its original amount. Within 30 days after the end of the term of the Lease, Assignor shall return the Security Deposit to Assignee, after deducting any sums then due and payable by Assignee to Assignor. 4. Representations and Warranties. Assignor represents and warrants to Assignee that: (a) the copy of the Lease attached to this Sublease as Exhibit A is a complete and accurate copy of the Lease, which is in effect and has not been amended except as set forth in Exhibit A; (b) Assignor has no knowledge of a material default by Landlord under the Lease, nor any event which, after any applicable notice and/or the expiration of any grace period, would constitute a material default by Landlord under the Lease; (c) Assignor has not received from Landlord any notice of a default by Assignor under the Lease that has not been waived or cured, and, to the best of Assignor's knowledge, Sublessor is not in default under the Lease, nor has any event occurred which, after any applicable notice and/or the expiration of any grace period, would constitute a default by Assignor under the Lease; and (d) All rent, additional rent and other charges due under the Lease have been paid through August 19, 1996. -3- Assignor and Assignee execute this Assignment as of the Effective Date. ABLE LABORATORIES, INC. ABLE ACQUISITION CORP. By: Beth Hecht By: Dhananjay G. Wadekar -------------------- ---------------------- Name: Name: Dhananjay G. Wadekar Title: Title: Executive Vice President EX-10.Y 12 LANDLORD'S CONSENT EXHIBIT 10y LANDLORD'S CONSENT CVN Associates, L.P., a New Jersey limited partnership ("Landlord"), acknowledges that it is the landlord of the building at 6 Hollywood Court, South Plainfield, New Jersey (the "Premises"), under a Lease Agreement dated November 29, 1984, between Hollywood Court Associates, a New Jersey partnership ("Original Landlord"), and Able Laboratories, Inc., a New Jersey corporation ("Assignor"), as amended by Space Expansion and Term Extension Agreement dated April, 1988, between Original Landlord and Assignor, as further amended by Space Expansion Agreement dated June, 1993, between Landlord and Assignor (said Lease Agreement, as so amended, the "Lease"). Original Landlord assigned its right, title and interest in and to the Lease to Landlord by Assignment of Lease dated April, 1989. Landlord hereby consents to the assignment by Assignor of its rights, interests and obligations under the Lease and all of its title and interest in the Premises to Able Acquisition Corp., a Delaware corporation, pursuant to the Assignment of Lease attached to this Consent as Exhibit A. By consenting to the referenced Assignment of Lease, the Landlord expressly does not release the Assignor from any obligations under the Lease. The Consent shall be deemed effective upon the execution of such Assignment of Lease by Assignor and Able Acquisition Corp. In partial consideration of this Landlord's Consent, Assignee, on behalf of itself and its successors or assigns with respect to its interests in the Lease or the Premises, and DynaGen, Inc. hereby agree to indemnify and save harmless Landlord from, and agree to defend Landlord from, any claims for real estate brokerage commissions asserted by the Sitar Company or William Phelan resulting from the Assignment of Lease which is the subject of this Consent and any term extension, space expansion or new lease agreement between Landlord and Assignee or any successor in interest to Assignee under the Lease or with respect to the Premises. In partial consideration of this Landlord's Consent, Assignor hereby agrees to indemnify and save harmless Landlord from, and agree to defend Landlord from, any claims for real estate brokerage commissions asserted by the Sitar Company or William Phelan resulting from the Assignment of Lease which is the subject of this Consent. This Consent shall not be deemed a consent to any subsequent assignment of the Lease or a sublease of any portion of the Premises or a waiver of any rights of Landlord under the Lease, except as expressly set forth in this Consent. Landlord, Assignor, Assignee and DynaGen, Inc. execute this Consent as of August 19, 1996. ABLE ACQUISITION CORP. CVN ASSOCIATES, L.P. By: CVN ASSOCIATES, INC., General Partner By: Dhananjay G. Wadekar By: Frank D. Viscaglia ---------------------- ------------------------ Name: Name: Frank D. Viscaglia Title: Title: President DYNAGEN, INC. ABLE LABORATORIES, INC. By:Dhananjay G. Wadekar By:George Barrett ---------------------- ------------------------ Name: Name: George Barrett Title: Title: President EX-10.Z 13 GUARANTY OF LEASE EXHIBIT 10z GUARANTY OF LEASE DynaGen, Inc., a Delaware corporation ("Guarantor"), executes this Guaranty in favor of Able Laboratories, Inc., a New Jersey corporation ("Assignor"), as of August 19, 1996. Preliminary Statement Assignor is the tenant of the entire building at 6 Hollywood Court, South Plainfield, New Jersey (the "Premises"), under a Lease Agreement dated November 29, 1984, between Hollywood Court Associates, a New Jersey partnership ("Original Landlord"), and Assignor, as amended by Space Expansion and Term Extension Agreement dated April, 1988, between Original Landlord and Assignor, as further amended by Space Expansion Agreement dated June, 1993, between CVN Associates, L.P., a New Jersey limited partnership ("Landlord"), and Assignor (said Lease Agreement, as so amended, the "Lease"). Original Landlord assigned its right, title and interest in and to the Lease to Landlord by Assignment of Lease dated April, 1989. Assignor wishes to assign its rights, interests and obligations under the Lease to Able Acquisition Corp., a Delaware corporation ("Assignee"), and Assignee wishes to accept such assignment and assume such obligations, on the terms and conditions of an Assignment of Lease of even date herewith (the "Assignment"). Agreement To induce Assignor to execute the Assignment, and in consideration of certain other transactions among Assignor, Assignee and Guarantor, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor absolutely and unconditionally guaranties to Assignor and its successor and assigns the full and punctual payment, performance and observance of all obligations of Assignee under the Assignment and under the Lease (collectively, the "Guarantied Obligations"), on the terms and conditions of this Guaranty: 1. Primary Obligation. Guarantor's obligations under this Guaranty shall be primary and independent of the obligations of Assignee. Assignor may, at its option, enforce the Guarantor's performance of the Guarantied Obligations without first enforcing performance of the Guarantied Obligations by Assignee. Guarantor hereby waives notice of the acceptance of this Guaranty, presentment, demand for payment, protest, and notice of protest, nonpayment, default or dishonor of the Guarantied Obligations, and all suretyship defenses. 2. Unconditional Obligation. The Guarantor shall remain liable under this Guaranty until the Guarantied Obligations have been fully paid, performed and observed, notwithstanding any (a) any further assignment of the Lease or sublease of any portion of the Premises, (b) any change in the corporate structure of Assignee or its relationship to Guarantor, or (c) any insolvency, bankruptcy, liquidation, reorganization, dissolution or similar proceeding involving or affecting Assignee. No delay by Assignor in exercising any right to enforce payment or performance of the Guarantied Obligations shall operate as a waiver of any such right. -2- 3. Costs and Expenses. The Guarantor shall pay all reasonable attorneys' fees and disbursements and all court costs and other expenses incurred by Assignor in the enforcement of this Guaranty. 4. Notices. Assignor shall deliver to Guarantor any notice of a default relating to the Guarantied Obligations which Assignor delivers to Assignee or receives from Landlord. Any notice to or demand upon the Guarantor shall be in writing and delivered in person or mailed by certified mail, postage prepaid, to 99 Erie Street, Cambridge, Massachusetts 02139, or to such other address as Guarantor may designate by written notice to Assignor. Any notice or demand so mailed shall be effective on the date of actual receipt or on the third business day after being so mailed, whichever first occurs. 5. Governing Law. This Guaranty shall be governed and construed in accordance with the substantive laws of the State of New Jersey, without regard to its principles of conflicts of laws. 6. Modifications. The Guaranty may be amended or modified only a written agreement signed by the Guarantor and Assignor. The Guaranty is executed as an instrument under seal. WITNESS: DYNAGEN, INC. Cynthia A. Kiley Dhananjay G. Wadekar - ------------------------- ------------------------------ Name: Cynthia A. Kiley Name: Dhananjay G. Wadekar Title: Executive Vice President EX-21 14 SUBSIDIARY OF THE REGISTRANT EXHIBIT 21 DYNAGEN, INC. 6/30/96 FORM 10-K SUBSIDIARY OF THE REGISTRANT Name of Subsidiary State of Incorporation - ---------------------------- ----------------------------- Able Laboratories, Inc. Delaware EX-23.A 15 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23a INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Number 33-66826 (dated August 2, 1993 on Form S-8 ), Number 33-78546 (dated May 2, 1994 on Form S-8), Number 33-71416 (Post-Effective Amendment No.3 to Form S-1 on Form S-3 dated May 16, 1995), Number 33-95432 (dated August 4, 1995 on Form S-8) and Number 333-1748 (dated March 28, 1996 on Form S-3) of DynaGen, Inc. of our report dated July 24, 1996, except for Note 12 as to which the date is August 19, 1996, appearing in DynaGen, Inc.'s Annual Report on Form 10-K for the fiscal year ended June 30, 1996. WOLF & COMPANY, P.C. Boston, Massachusetts September 25, 1996 EX-27 16 FINANCIAL DATA SCHEDULE EXHIBIT 27
5 12-Mos Jun-30-1996 Jun-30-1996 375,948 10,087,918 89,703 0 0 10,936,725 424,712 (281,362) 11,576,666 733,032 2,000,000 0 0 285,600 8,558,034 11,576,666 220,745 555,745 96,680 5,899,650 (367,715) 0 121,229 (5,097,419) 0 (5,097,419) 0 0 0 (5,097,419) (.21) 0
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