<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED: March 31, 1998; or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-11352
DynaGen, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 04-3029787
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
840 Memorial Drive
Cambridge, MA 02139
-------------------
(Address of principal executive offices, including zip code)
(617) 491-2527
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of May 1, 1998, there were outstanding 15,269,822 shares of common stock,
$.01 par value per share.
<PAGE> 2
DYNAGEN, INC.
FORM 10-Q
QUARTERLY REPORT
TABLE OF CONTENTS
Facing Page 1
Table of Contents 2
Special Considerations 3
PART I. FINANCIAL INFORMATION (*)
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 7
Condensed Consolidated Statements of Loss 9
Condensed Consolidated Statements of Changes
in Stockholders' Equity 10
Condensed Consolidated Statements of
Cash Flows 11
Notes to Unaudited Condensed Consolidated
Financial Statements 13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 19
PART II. OTHER INFORMATION
Item 2. Changes in Securities 28
Item 3. Defaults in Senior Securities 28
Item 4. Submission of Matters to a Vote
of Security Holders 30
Item 6. Exhibits and Reports on Form 8-K 32
SIGNATURES 34
(*) The financial information at December 31, 1997 has been derived from
the audited financial statements at that date and should be read in
conjunction therewith. All other financial statements are unaudited.
2
<PAGE> 3
DYNAGEN, INC.
SPECIAL CONSIDERATIONS
-------------------------------------------------------------
During the three months ended March 31, 1998, DynaGen, Inc. ("DynaGen"
or the "Company") continued to experience a decrease in the Company's stock
price and market capitalization, continued losses from operations and
substantial and continuing dilution to existing stockholders due to the
conversion features of convertible securities sold by the Company. The following
special considerations should be carefully noted by the reader:
FINANCIAL CONDITION OF THE COMPANY
For the three months ended March 31, 1998, the Company incurred net
losses of $1,679,062. As of March 31, 1998, the Company had approximately
$440,643 in cash and cash equivalents and a net worth of $3,172,810. The
Company's current liabilities, as of such date, aggregated $24,611,179. The
Company expects its operating cash needs for the next twelve months to be
approximately $7,000,000. The Company does not presently have adequate cash from
operations to meet these needs. In order to meet its needs for cash to fund its
operations, the Company must obtain additional financing and renegotiate the
terms of its current arrangements with creditors. The Company is presently in
default under a number of its arrangements, agreements and instruments with
creditors, with the result that the Company's obligations under such agreements
and instruments may be accelerated. If the Company is unable to obtain
significant additional financing or to renegotiate its arrangements with
existing creditors, it may be obliged to seek protection from its creditors
under the bankruptcy laws. See "Management's Discussion and Analysis - Liquidity
and Capital Resources;" the financial statements and notes thereto included as
part of this Report.
COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN
The Company's independent auditors have issued an opinion on the
financial statements of the Company, as of December 31, 1997 and for the year
then ended, which includes an explanatory paragraph expressing substantial doubt
about the Company's ability to continue as a going concern. Among the reasons
cited by the independent auditors as raising substantial doubt as to the
Company's ability to continue as a going concern are the following: the Company
has incurred recurring losses from operations resulting in an accumulated
deficit and a working capital deficiency. In addition, the Company has debt
obligations which are in default, and a liability of approximately $4,000,000 to
the selling stockholders of Superior Pharmaceutical Company ("Superior"). The
ability of the Company to use cash generated by its subsidiaries, Superior and
Generic Distributors, Incorporated
3
<PAGE> 4
DYNAGEN, INC.
SPECIAL CONSIDERATIONS
-------------------------------------------------------------
("GDI"), is restricted under the terms of the subsidiaries' loan agreements.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. If the Company is unable to secure significant
additional financing or to renegotiate its agreements with its existing
creditors, it may be obliged to seek protection from its creditors under the
bankruptcy laws. See "Management's Discussion and Analysis Liquidity and Capital
Resources;" the financial statements and notes thereto included as part of this
Report.
COMPANY'S COMMON STOCK MAY BE DELISTED FROM NASDAQ STOCK MARKET
On February 26, 1998, the Company received a notice from the Nasdaq
Stock Market, Inc. ("Nasdaq") that it does not meet the applicable listing
requirements and that the Company's common Stock is therefore subject to
delisting. The Company has contested the delisting of its securities in
accordance with Nasdaq's procedures. The Company does not meet the Nasdaq
listing requirements. Although Nasdaq has the discretion to grant exceptions to
the listing requirements, there is no assurance that it will do so in the
Company's case. The Company anticipates that, if its Common Stock is delisted
from the Nasdaq SmallCap Market, it will continue to trade on the Boston Stock
Exchange and may also be quoted on the OTC Bulletin Board. However, delisting of
the Company's Common Stock from the Nasdaq SmallCap Market could have a material
adverse effect on the liquidity of the Common Stock and on the Company's ability
to raise capital necessary for the Company's continued operations.
CONTINGENT OBLIGATIONS WITH RESPECT TO SUPERIOR ACQUISITION
The Company used a combination of cash, a note and 166,667 shares of
Common Stock (after giving effect to a one-for-ten reverse split of the common
stock outstanding) to acquire Superior in June 1997. The Agreement and Plan of
Merger for the Superior acquisition provides that the Company is also obligated
to issue to the former stockholders of Superior up to an additional 1,666,667
shares of Common Stock if on June 18, 1998 the Common Stock has not had an
average closing bid price of at least $3.00 per share for the 10 previous
trading days. The merger agreement provides further that if the Common Stock is
not trading at least at $1.50 per share, DynaGen shall pay to the former
Superior stockholders in immediately available funds the difference between
$5,000,000 and the then current aggregate market value of the shares then held
by the former Superior stockholders. If the Common Stock continued to trade at
its present price of approximately $0.50 per share, the Company would become
obligated to pay approximately $4,000,000 in
4
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DYNAGEN, INC.
SPECIAL CONSIDERATIONS
-------------------------------------------------------------
cash to the former stockholders of Superior. There can be no assurance that the
Common Stock will be traded at a price of $1.50 or greater as of June 18, 1998
or that the Company will have the ability to meet any future obligation to pay
cash to the former Superior stockholders. The Company's inability to meet any
such obligation or other fixed or contingent obligations of the Company as they
become due could have a material adverse effect on the Company's ability to
continue its operations.
VOLATILITY OF STOCK PRICE
The market for securities of small and micro-cap companies, including
those of the Company, has been highly volatile. The market price of the
Company's Common Stock has fluctuated between $70.00 and $1.30 from January 1,
1993 to December 31, 1997 and was approximately $0.50 on April 14, 1998, and it
is likely that the price of the Common Stock will continue to fluctuate widely
in the future. Announcements of technical innovations, new commercial products,
results of clinical trials, regulatory approvals, patent or proprietary rights
or other developments by the Company or its competitors could have a significant
impact on the Company's business and the market price of the Common Stock.
ADVERSE CONSEQUENCES ASSOCIATED WITH THE OBLIGATION TO ISSUE
SUBSTANTIAL SHARES OF COMMON STOCK UPON CONVERSION OF CONVERTIBLE
SECURITIES
The Company is obligated to issue a substantial number of shares of
Common Stock upon the conversion or exercise of its outstanding warrants,
rights, convertible preferred stock and a convertible note. The price which the
Company may receive for the Common Stock issuable upon exercise of such options
and warrants will, in all likelihood, be less than the market price of the
Common Stock at the time of such exercise. Consequently, for the life of such
options and warrants the holders thereof may have been given, at nominal cost,
the opportunity to profit from a rise in the market price of the Common Stock.
The exercise of all of the aforementioned securities may also adversely
affect the terms under which the Company could obtain additional equity capital.
In all likelihood, the Company would be able to obtain additional equity capital
on terms more favorable to the Company at the time the holders of such
securities choose to exercise them. In addition, should a significant number of
these securities be exercised, the resulting increase in the amount of
5
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DYNAGEN, INC.
SPECIAL CONSIDERATIONS
-------------------------------------------------------------
the Common Stock in the public market could have a substantial dilutive effect
on the Company's outstanding Common Stock.
On April 24, 1998, the Company suspended conversions of its Series A
and B Preferred Stock into the Company's Common Stock. The purpose of this
suspension is to give the Company time to coordinate its efforts to negotiate
orderly settlements of these outstanding convertible securities.
6
<PAGE> 7
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DYNAGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents
$ 440,643 $ 697,045
Accounts receivable, net of
allowance for doubtful accounts
of $47,350 and $43,118 4,024,666 3,152,779
Rebates 336,333 713,976
Inventory (Note 3) 8,456,605 9,111,324
Notes receivable 110,000 110,000
Prepaid expenses and other
current assets 180,435 147,972
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Total current assets 13,548,682 13,933,096
------------- ------------
Property and equipment 1,814,812 1,772,878
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Other assets:
Customer lists, net of accumulated
amortization of $2,053,540 and
$1,361,200 (Note 2) 12,288,078 12,250,800
Goodwill, net of accumulated
amortization of $29,205 and
$22,751 (Note 2) 357,013 363,468
Patents and trademarks, net of
accumulated amortization of
$105,427 and $89,164 338,498 345,381
Deferred debt financing costs,
net of accumulated amortization 381,239 359,621
Deposits and other assets 247,866 322,870
------------- ------------
Total other assets 13,612,694 13,642,140
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$ 28,976,188 $ 29,348,114
============= ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE> 8
DYNAGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Bank overdraft $ -0- $ 142,616
Notes payable (Note 4) 9,176,667 8,348,333
Loan payable - bank 6,705,700 6,584,710
Accounts payable 4,352,790 6,390,421
Accrued payroll and
payroll taxes 293,009 95,312
Acquisition obligation (Note 2) 4,083,000 4,083,000
------------- ------------
Total current liabilities 24,611,166 25,644,392
Warrant put liability 776,212 750,594
Long term debt 416,000 328,500
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Total liabilities 25,803,378 26,723,486
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Stockholders' equity (Notes 1 and 2):
Preferred stock, $.01 par value,
10,000,000 shares authorized,
54,712 and 63,522 shares of
Series A through G outstanding
(liquidation value $5,471,270 and
$6,348,417 respectively) 547 635
Common stock, $.01 par value,
75,000,000 shares authorized,
14,667,951 and 4,315,137 shares
issued and outstanding
respectively 146,680 43,151
Additional paid-in capital 41,261,114 39,137,311
Accumulated deficit (38,235,531) (36,556,469)
------------- ------------
Total stockholders' equity 3,172,810 2,624,628
------------- ------------
$ 28,976,188 $ 29,348,114
============= ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
8
<PAGE> 9
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
March 31, March 31,
1998 1997
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<S> <C> <C>
Revenues:
Fees and royalties $ 42 $ 232
Product sales 6,961,583 457,438
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Total revenues 6,961,625 457,670
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Costs and expenses:
Cost of sales 5,558,562 453,545
Research and development 226,617 487,412
Selling, general and
administrative 2,466,917 1,474,930
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Total costs and expenses 8,252,096 2,415,887
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Operating loss (1,290,471) (1,958,217)
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Other income (expense):
Investment income, net 53,006 92,330
Interest and financing expense (374,572) (13,539)
Amortization of debt
financing costs (67,025) (9,186)
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Other income, net (388,591) 69,605
------------- -------------
Net loss $ (1,679,062) $ (1,888,612)
============= =============
Net loss per share- basic $ (0.24) $ (0.63)
============= =============
Weighted average shares outstanding
(Note 1) 7,566,447 2,997,752
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
9
<PAGE> 10
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
CONVERTIBLE
COMMON STOCK PREFERRED STOCK
COMPREHENSIVE ------------------- ----------------------
INCOME SHARES AMOUNT SHARES AMOUNT
---------------- ---------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 2,910,623 $ 29,106 - $ -
Exercise of stock options 150 2 - -
Issuance of common stock
purchase warrants - - - -
Stock options issued for
services - - - -
Stock issued for interest
obligation 1,688 17 - -
Conversion of note payable 98,960 990 - -
Comprehensive Income:
Net loss $(1,888,612) - - - -
Decrease in unrealized
gain on investment
securities (577) - - - -
----------- ---------- -------- --------- ----------
$(1,889,189)
===========
Balance at March 31, 1997 3,011,421 $ 30,115 - $ -
========== ======== ========= ==========
Balance at
December 31, 1997 4,315,137 $ 43,151 63,522 $ 635
Stock issued for GDI
acquisition - - 12,000 120
Shares issued in private
placements - - 10,000 100
Stock issued for services 60,000 600 - -
Delayed registration
penalty - - - -
Conversion of note payable 1,040,949 10,410 - -
Conversion of preferred
stock 9,251,865 92,519 (30,810) (308)
Comprehensive Income:
Net loss (1,679,062) - - - -
----------- ---------- -------- --------- ----------
$(1,697,062)
===========
Balance at March 31, 1998 14,667,951 $146,680 54,712 $ 547
========== ======== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
PAID-IN ACCUMULATED COMPREHENSIVE
CAPITAL DEFICIT INCOME TOTAL
------------ ------------- ---------- -----
<S> <C> <C> <C> <C>
Balance at
December 31, 1996 $29,338,794 $(24,315,191) $ 1,307 $ 5,054,016
Exercise of stock options 1,123 - - 1,125
Issuance of common stock
purchase warrants 200 - - 200
Stock options issued for
services 37,691 - - 37,691
Stock issued for interest
obligation 27,722 - - 27,739
Conversion of note payable 984,775 - - 985,765
Comprehensive Income:
Net loss - (1,888,612) - (1,888,612)
Decrease in unrealized
gain on investment
securities - - (577) (577)
----------- ------------ ------- -----------
Balance at March 31, 1997 $30,390,305 $(26,203,803) $ 730 $ 4,217,347
=========== ============ ======= ===========
Balance at
December 31, 1997 $39,137,311 $(36,556,469) $ -0- $ 2,624,628
Stock issued for GDI
acquisition 1,199,880 - - 1,200,000
Shares issued in private
placements 920,444 - - 920,544
Stock issued for services 38,600 - - 39,200
Delayed registration
penalty (87,500) - - (87,500)
Conversion of note payable 144,590 - - 155,000
Conversion of preferred
stock (92,211) - - -
Comprehensive Income:
Net loss - (1,679,062) - (1,679,062)
----------- ------------- ------- ----------
Balance at March 31, 1998 $41,261,114 ($38,235,531) $ - $ 3,172,810
=========== ============= ======= ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
10
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DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
March 31, March 31,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,679,062) $ (1,888,612)
Adjustments to reconcile
net loss to net cash used for
operating activities:
Stock issued for services 39,200 37,691
Depreciation and amortization 844,783 47,905
Amortization and accretion
of (discounts) premiums on
investment securities -- (11,048)
Stock issued for
interest obligation -- 27,739
(Increase) decrease in operating assets:
Accounts receivable (134,663) (5,347)
Rebates 377,643 --
Inventory 1,706,503 (313,346)
Prepaid expenses and
other current assets (21,983) 42,989
Deposits and other assets 79,142 --
Increase (decrease) in operating
liabilities:
Accounts payable and
accrued expenses (2,498,208) 22,569
----------- -----------
Net cash used for
operating activities (1,286,645) (2,039,460)
----------- -----------
Cash flows from investing activities:
Purchase of investment securities -- (1,186,455)
Proceeds from sales and maturities
of investment securities -- 2,100,000
Purchase of wholly-owned subsidiary, net
of cash received in acquisition (756,406) --
Purchase of property and
equipment (45,603) (115,738)
Increase in deferred financing
and acquisition costs (50,000) (107,432)
----------- -----------
Net cash provided (used) by
investing activities (852,009) 690,375
----------- -----------
</TABLE>
(Continued)
See accompanying notes to unaudited consolidated financial statements.
11
<PAGE> 12
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
March 31, March 31,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds (costs) on exercise of
stock warrants and options $ - $ 1,325
Net proceeds from private stock
placements 920,544 -
Net proceeds from debt placement 200,000 -
Proceeds from bank loan 1,200,000 -
Net proceeds from loan payable-bank 120,990 -
Repayment of Superior note payable (416,666) -
Decrease in bank overdraft (142,616) -
------------- -------------
Net cash provided by
financing activities 1,882,252 1,325
------------- -------------
Net change in cash and cash equivalents (256,402) (1,347,760)
Cash and cash equivalents,
beginning of period 697,045 2,112,300
------------- -------------
Cash and cash equivalents,
end of period $ 440,643 $ 764,540
============= =============
Supplemental cash flow information:
Common stock issued for convertible
note payable $ 155,000 $ 985,765
Stock options issued for
future services - -
Debt issued for delayed registration
penalty 87,500 -
Supplemental cash flow information:
Interest paid 208,291
Schedule of non cash investing and financing activities:
On March 2, 1998, the Company purchased the net assets
of GDI, Inc. for $2,350,000. In connection
with the acquisition, non cash financing activities,
liabilities assumed and customer lists were as follows:
Fair value of assets acquired 2,375,274
Cash paid (1,150,000)
Preferred stock issued (1,200,000)
Liabilities assumed (658,274)
-------------
Customer lists (exclusive of other acquisition costs of $96,618) 633,000
=============
Note payable
</TABLE>
Additional cash flow information is included in Notes 2 and 5.
See accompanying notes to unaudited consolidated financial statements.
12
<PAGE> 13
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
-------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of DynaGen,
Inc. (the "Company") and its wholly-owned subsidiaries, Able Laboratories, Inc.
("Able"), which is engaged in the manufacture of generic pharmaceuticals, and
Superior Pharmaceutical Company ("Superior") and Generic Distributors
Incorporated ("GDI"), which are engaged in the distribution of generic
pharmaceuticals, and BioTrack, Inc. and Apex Pharmaceuticals, Inc., which are
developing diagnostic and therapeutic products. The accompanying unaudited
consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statement presentation. All significant intercompany balances and
transactions have been eliminated in consolidation. In March 1998, the Company
acquired Generic Distributors Limited Partnership which is engaged in the
distribution of generic pharmaceuticals. (See Note 2.)
The results of operations for the periods reported are not necessarily
indicative of those that may be expected for a full year. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
which are necessary for a fair statement of operating results for the interim
periods presented have been made.
The financial information included in this report has been prepared in
conformity with the accounting policies reflected in the financial statements
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
REVERSE STOCK SPLIT
On March 4, 1998 the Company's Stockholders approved a 1 for 10 reverse
stock split of the common shares. All common stock information presented herein
has been retroactively adjusted to reflect the reverse stock split.
USE OF ESTIMATES
In preparing consolidated financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the balance sheet date and reported amounts of revenues and
expenses during the reporting period. Material estimates that are particularly
susceptible to significant change in the near term relate to the carrying values
of rebates receivable and intangible assets, the valuation of equity instruments
issued by the Company and the amount of obligations due as a result of defaults
on certain debt obligations. Actual results could differ from those estimates.
REBATES
Rebates represent incentives provided by pharmaceutical suppliers based
on purchases. Management has estimated its rebates based upon agreements and
purchases during the year. Actual rebates could be different due to market
volatility and whether the Company continues to use these suppliers.
13
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DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - Continued
March 31, 1998
-------------------------------------------------------------
INVENTORY
Inventory is valued at the lower of average cost or market on a
first-in first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense is
provided over the estimated useful lives of the assets using the straight-line
method. Leasehold improvements are amortized on the straight-line method over
the shorter of the estimated useful life of the asset or the life of the related
lease term.
CUSTOMER LISTS AND GOODWILL
Customer lists and goodwill are being amortized over estimated lives of
five and fifteen years, respectively. (See Note 2.)
REVENUE RECOGNITION
Revenues from product sales are recognized when products are shipped.
Revenues from license fees and royalties are recognized as the terms of the
agreements are met.
EARNINGS PER SHARE
In February 1997, FASB issued SFAS No. 128, "Earnings per Share" which
requires that earnings per share be calculated on a basic and a dilutive basis.
Basic earnings per share represents income available to common stock divided by
the weighted-average number of common shares outstanding during the period.
Diluted earnings per share reflects additional common shares that would have
been outstanding if dilutive potential common shares had been issued, as well as
any adjustment to income that would result from the assumed conversion. The
Statement is effective for interim and annual periods ending after December 15,
1997, and requires the restatement of all prior-period earnings per share data
presented. Accordingly, the Company has restated all earnings per share data
presented herein.
For the three months ended March 31, 1998 and 1997 options, warrants
and put warrants, were anti-dilutive and excluded from the diluted earnings per
share computations.
The loss applicable to common stockholders has been increased by the
stated dividends on the convertible preferred stock and the amortization of
discounts on the convertible preferred stock due to the beneficial conversion
feature. Shares of common stock contingently issuable to the former stockholders
of Superior have not been included in diluted EPS because to do so would have
been anti-dilutive.
COMPREHENSIVE INCOME
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive
Income," effective for fiscal years beginning after December 15, 1997.
Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Certain FASB statements, however, require
entities to report specific changes in assets and liabilities, such as
unrealized gains and losses on available-for-sale securities, as a separate
component of the equity section of the balance sheet. Such items, along with net
income, are components of comprehensive income. SFAS No. 130 requires that all
items of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Additionally,
SFAS No. 130 requires that the accumulated balance of other comprehensive income
be displayed separately from retained earnings and additional paid-in capital in
the equity section of the balance sheet. The Company adopted these disclosure
requirements in the first quarter of 1998 and has presented comparitive
disclosure for the quarter ended March 31, 1997.
2. BUSINESS ACQUISITIONS
SUPERIOR PHARMACEUTICAL COMPANY
On June 18, 1997, the Company acquired all of the outstanding stock of
Superior Pharmaceutical Company ("Superior"), a distributor of generic
pharmaceutical products. The Company paid the shareholders of Superior
$6,250,000 in cash, $5,000,000 in three-year secured promissory notes and
166,667 shares of DynaGen's common stock with a guaranteed value of $5,000,000.
DynaGen is obligated to issue to the shareholders up to an additional 1,666,667
shares of its common stock after twelve months if its common stock is not
trading at an average of at least $3.00 per share for 10 consecutive trading
days. If, immediately following the issuance of the additional 1,666,667 shares,
DynaGen's common stock is not trading for at least $1.50 per share, DynaGen
shall pay to the shareholders the difference between $1.50 and the then current
trading price of its common stock for each of the shares issued. DynaGen is
obligated to register the shares within eleven months after the closing of the
acquisition. The Company recorded a $4,083,000 acquisition obligation at
December 31, 1997 based on the difference between the current estimated fair
value of the 1,833,334 shares of common stock issued and issuable and the
14
<PAGE> 15
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - Continued
March 31, 1998
-------------------------------------------------------------
guaranteed value of $5,000,000. The former shareholders of Superior, who remain
as senior management at Superior, may also receive certain incentive payments
based on Superior's performance during the three years following the closing of
the acquisition. DynaGen contributed $1,750,000 in additional capital to
Superior immediately following the closing.
The Superior acquisition has been accounted for as a purchase. The
results of operations of Superior have been included in the Company's
consolidated financial statements since the date of acquisition. The purchase
price allocation was based on the estimated fair values at the date of
acquisition. The Company allocated $13,612,000 of the purchase price to customer
lists based on an independent appraisal, which is being amortized on a
straight-line basis over five years. Amortization of customer lists amounted to
$680,600 for the three months ended March 31, 1998. In addition, the Company
recorded goodwill of $386,219, which is being amortized on a straight-line basis
over 15 years. Amortization expense for the three months ended March 31, 1998
was $6,454.
GENERIC DISTRIBUTORS, INC.
On March 2, 1998, the Company through its subsidiary, Generic
Distributors, Incorporated ("GDI"), completed the acquisition of substantially
all of the assets and liabilities of Generic Distributors Limited Partnership
("GDLP"), of Monroe, LA. In connection with the acquisition, the Company paid
the limited partnership $1,200,000 in cash, and $1,050,000 in Series E
Convertible Preferred Shares and 1,500 shares of Series F Convertible Preferred
Stock valued at $100,000, for a total purchase price of $2,350,000. The Series E
Preferred Shares are convertible beginning 12 months from the closing into the
Company's common shares at the then prevailing market prices. The Series F
Preferred Stock is convertible into $100,000 in value of the Company's Common
Stock commencing 120 days after the closing. In connection with the transaction,
GDI received $1,200,000 in a five-year term loan from Fleet Bank. The loan
carries interest of LIBOR plus 3%, is payable in quarterly installments of
principal and interest and matures on April 26, 2003. Fleet Bank also
established a revolving line of credit for general working capital in the amount
of $300,000. The line bears interest at LIBOR plus 2-1/2%. The loans are secured
by all of the assets of GDI and the Company's subsidiary, Able Laboratories,
Inc., and a pledge of all of the common stock of GDI, and are guaranteed by the
Company. In addition, the Company entered into employment and consulting
15
<PAGE> 16
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - Continued
March 31, 1998
-------------------------------------------------------------
agreements with the sellers which provide, among other things, for annual
compensation and a signing bonus of 1,500 shares of Series F Preferred Stock,
convertible into $100,000 of the Company's Common Stock commencing 120 days
after the closing.
The GDI acquisition has been accounted for as a purchase. The results
of operations of GDI have been included in the Company's consolidated financial
statements since the date of acquisition. The purchase price allocation was
based on the estimated fair values at the date of acquisition. The Company
allocated $729,618 of the purchase price to customer lists, based on an
independent appraisal, which is being amortized on a straight line basis over
five years. Amortization of customer lists amounted to $11,740 for the three
months ended March 31, 1998.
Unaudited proforma consolidated operating results for the Company,
assuming the acquisitions of Superior and GDI had been made as of the beginning
of the most recent fiscal year for each of the periods presented, are as
follows:
Three months ended
-------------------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
Revenues $8,142,348 $9,397,618
Net loss (1,781,614) (1,805,420)
Net loss per share (0.24) (0.60)
The unaudited proforma information is not necessarily indicative either
of the actual results of operations that would have occurred had the purchases
been made as of the beginning of each of the fiscal periods presented or of
future results of operations of the combined companies.
3. INVENTORY
Inventory consists of the following:
March 31, December 31,
-----------------------------------
1998 1997
------ -----
Raw materials $ 300,538 $ 311,166
Work-in-progress 203,259 136,240
Finished goods 7,952,808 8,663,918
---------- ----------
$8,456,605 $9,111,324
========== ==========
16
<PAGE> 17
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - Continued
March 31, 1998
-------------------------------------------------------------
4. Debt
<TABLE>
<CAPTION>
March 31, December 31,
Notes payable consist of the following: 1998 1997
---------- ----------
<S> <C> <C>
Convertible note payable $ 535,000 $ 535,000
Bridge loans 675,000 630,000
Notes payable - Superior acquisition 3,766,667 4,183,333
Secured debt - Fleet Bank 1,200,000 -
Senior subordinated debt 3,000,000 3,000,000
---------- ----------
$9,176,667 $8,348,333
========== ==========
</TABLE>
SUBSEQUENT EVENTS
On April 3, 1998 the Company sold $500,000 of its Series D convertible
preferred stock to an unaffiliated investor. In connection with this financing,
the investor also received an 8% debenture for $87,500.
On April 30, 1998 the Company borrowed $250,000 from an investor as a
bridge loan. The loan is to be repaid from the proceeds of future private
placements to be completed by the Company. The loan is secured by the pledge of
substantially all of the common stock held by the Company's Chief Executive
Officer and the Executive Vice President. If the Company is unable to repay this
loan, the investor has an option to convert this loan into Series D preferred
stock.
On April 30, 1998 the Company's Board of Directors unanimously voted to
sell a portion of its majority-owned subsidiary, BioTrack, Inc. The Board, based
on discussions with several potential investors of the Company as well as of
BioTrack, believes that this action will facilitate the future financing of both
companies. The Company's equity in BioTrack will be reduced to approximately 20%
and the balance will be set aside for the inventors of the technology, investors
and the BioTrack management.
17
<PAGE> 18
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. Except for historical
information contained herein, the matters discussed in the Liquidity and Capital
Resources section below contain potential risks and uncertainties, including,
without limitation, risks related to the Company's ability to successfully
develop, test, produce and market its proposed products; obtain governmental
approvals in a timely manner; identify and attract marketing partners to help
commercialize the Company's products; attract and retain key employees; obtain
meaningful patent protection or otherwise over the Company's proprietary
technology; protect itself from product liability risks or limitations imposed
due to potential health care reform; raise capital for future operations and
commercialization of its products; integrate the products and personnel the
Company acquired in the acquisition of Able Laboratories, Inc. ("Able"),
Superior Pharmaceutical and GDI, Inc. and successfully respond to technological
changes in the marketplace. Specifically, regulatory approvals of the Company's
products are subject to factors beyond the Company's control, and there can be
no assurance that such approvals will not be delayed or ultimately denied. The
Company will need to attract marketing partners in order to exploit its
products, and there can be no assurance that the Company will be successful in
attracting such partners. Additional information on potential factors which
could affect the Company's financial results are included in the Company's
public filings with the Securities and Exchange Commission, including without
limitation its Form 10-K for the period ended December 31, 1997.
The information set forth below should be read in connection with the
financial statements and notes thereto, as well as other information contained
in this Report which could have a material adverse effect on the Company's
financial condition and results of operations. The reader's attention is
directed, in particular, to the matters described under the headings "Special
Considerations" and "Liquidity and Capital Resources" contained elsewhere in
this Report.
OVERVIEW
The Company develops and markets proprietary and generic therapeutic
and diagnostic products for the human health care market. The Company has begun
expanding its business focus from being a development and licensing company to
building a diversified health care company focused on the manufacture and
distribution of generic drug products and specialty pharmaceuticals as well as
the continued development of therapeutic and diagnostic products. The Company
intends to implement this strategy through the acquisition of businesses,
technologies and products that the Company believes are undervalued as well as
through internal product development. In August 1996, the Company acquired the
tablet business of Able Laboratories, Inc. ("Able"), a generic pharmaceutical
product subsidiary of Alpharma, Inc. In addition, the Company has purchased all
of the outstanding shares of Superior Pharmaceutical Company ("Superior"), a
distributor of generic pharmaceuticals. In March 1998, the Company, through its
wholly-owned subsidiary, Generic Distributors, Incorporated ("GDI"), completed
the acquisition of Generic Distributors Limited Partnership.
The Company has financed its operations primarily through the proceeds
from its public and private stock offerings, a convertible note, bank debt and
other loans and limited revenues from product sales and technology license fees
and royalties. Management anticipates that revenues from product sales will not
be sufficient to fund its current operations or produce an operating profit
until such time as the Company is able to establish acceptance of its products
in their respective markets and expand its distribution channels. The Company
has incurred losses since inception and expects to incur additional losses until
such time as it is able to successfully develop, manufacture, and sell or
license its existing and proposed products and technologies.
18
<PAGE> 19
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
RESULTS OF OPERATIONS
Three Month Period Ended March 31, 1998 as Compared With the Three
Month Period Ended March 31, 1997
Revenues for the three month period ended March 31, 1998 were
$6,961,625 versus $457,670 for the period ended March 31, 1997. The increase of
$6,503,955 is primarily the result of product sales by the Company's
wholly-owned generic pharmaceutical subsidiaries, Able (acquired in August 1996)
and Superior (acquired in June 1997).
Cost of product sales was $5,558,562, or 80% of product sales
for the three-month period ended March 31, 1998 compared to $453,545, or 99% of
product sales for the three month period ended March 31, 1997 due to low
production and sales levels at Able which did not support the fixed
manufacturing costs of the Able facility.
Research and development expenses for the three month period ended
March 31, 1998 were $226,617 versus $487,412 for the three month period ended
March 31, 1997. 1997 R&D expenses were primarily the result of the
NicErase(R)-SL Phase 3 clinical trials, now concluded, and the NicErase(R)-SL
development program which has been discontinued. The Company is currently
developing several generic versions of branded pharmaceuticals to support its
generic drug business.
Selling, general and administrative expenses for the three month period
ended March 31, 1998 were $2,466,917 versus $1,474,930 for the three month ended
March 31, 1997. The $991,987 increase is primarily due to Superior's selling,
general and administrative expenses of $981,000.
Investment income was $53,006 for the three months ended March 31, 1998
as compared to $92,330 for the three month period ended March 31, 1997, as the
Company had less funds available for investment. Interest and financing expenses
of $348,953 for the three month period ended March 31, 1998, compared to
$13,539 for
19
<PAGE> 20
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
the three month period ended March 31, 1997, relate primarily to private
placements of equity as well as private debt financing for the Superior and GDI
acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had a working capital deficit of
$11,062,484, compared to working capital deficit of $11,711,296 at December 31,
1997. Cash was $440,643 at March 31, 1998 compared to $697,045 at December 31,
1997. Working capital was used primarily to fund the Company's operating losses,
including approximately $360,000 of operating losses of its Able subsidiary, and
research and development costs of approximately $227,000. The Company expects
its cash needs for the next 12 months to be approximately $7,000,000. Of this
amount, approximately $3,000,000 is expected to be general and administrative
and approximately $4,000,000 is expected to be for working capital. The Company
expects to generate the needed cash through additional financing activities. If
the Company is not able to raise the needed financing, it may need to seek the
protection of the bankruptcy courts. See "Special Considerations - Financial
Condition of the Company."
In June 1997, the Company completed the acquisition of Superior
Pharmaceutical Company, of Cincinnati, Ohio, for a purchase price of $16.5
million in cash, notes and stock. The Company guaranteed that the selling
shareholders would receive at least $5,000,000 in the stock value as of June
1998. The agreement provides that the Company will make up any shortfall in this
guaranteed stock value through the issuance of additional stock and cash. The
Company is currently trying to renegotiate its obligations to the selling
shareholders of Superior. No assurance can be given that the Company will be
successful in this effort. If the Company is not able to renegotiate these
obligations, it may need to seek the protection of the bankruptcy courts. See
"Special Considerations - Contingent Obligation with Respect to Superior
Acquisition." Superior markets and distributes generic prescription and
over-the-counter pharmaceuticals to independent, chain and institutional
pharmacies throughout the United States. The Company financed this
20
<PAGE> 21
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (Continued)
acquisition by issuing Series A and Series B Preferred Shares for proceeds of
$6,100,000 and subordinated debt of $3,000,000 obtained from two institutional
lenders. The Company also invested $1,750,000 in Superior towards working
capital as required by the secured lender. Superior has a $9,000,000 secured
revolving facility through Huntington National Bank, of Cincinnati, Ohio.
Furthermore, subsequent to the acquisition of Superior in June 1997,
Superior experienced the loss of key personnel, declining revenues, erosion of
margins and an overall decline in its business. These factors have resulted in
the Company not meeting certain loan covenants stipulated by the secured and
subordinated lenders. As a result, the secured lender has agreed to extend the
credit line that matured in April 1998 for 60 days and upon review of the
Company's performance may consider further extension. The Company obtained a
waiver and extension of the third quarterly payment of $515,625 to the selling
shareholders which was due on March 31, 1998. The Huntington Bank agreement
provides that the selling shareholders of Superior may draw this payment out of
its operating cash flows provided that Superior and DynaGen meet the loan
covenants. The Company has also received an extension on the payment of the
$535,000 convertible note payable which matured on February 7, 1998.
The Company has begun initial discussions with the selling shareholders
of Superior to renegotiate the additional payment of $4,000,000 due in June
1998. While these discussions have been positive, there is no assurance that the
parties will come to an agreement or that such an agreement, if reached, will be
on terms favorable to the Company. Failure to reach an agreement will result in
further defaults on the Company's loan covenants and may allow the selling
shareholders certain rights under the purchase and sale agreement, including but
not limited to the pledge of all of Superior's shares. The selling shareholders,
the secured lender and the subordinated lender have not informed the Company of
their intentions to exercise their rights under various agreements. However,
there is no assurance that the Company will successfully renegotiate the
covenants. In such circumstances, the company will continue to show substantial
working capital deficits and continue to be in default of its agreements. If the
Company is not able to renegotiate with the selling shareholders of Superior or
renegotiate or meet its obligations to Huntington National Bank, the Company may
need to seek the protection of the bankruptcy courts.
21
<PAGE> 22
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The Company continues to operate its Able Laboratories, Inc.
manufacturing facility for manufacture and distribution of generic drugs. In
March 1997, the Company entered into an agreement with Kali Laboratories for
development and clinical testing of certain prescription pharmaceuticals. Under
this agreement, Kali would be reimbursed for its development efforts on a
milestone basis and receive royalties from the sale of the products. Able has a
working capital deficit and management expects Able will require approximately
$4,000,000 in the next 12 months to continue operations. No assurance can be
given that such financing will be available upon reasonable terms. If the
Company cannot obtain sufficient financing or otherwise meet Able's
requirements, the Company may be required to close that operation or seek
protection of the bankruptcy courts.
The Company's private placement of Series A and Series B Preferred
Shares allowed investors to convert into shares of common stock at a floating
discount to the market of approximately 25%. The stock price was depressed due
to below-market conversions and selling of common shares by the holders of
Series A and Series B Preferred Shares. This investment, along with the
outlicensing of the Company's lead product, NicErase(R)-SL, and continued losses
at both DynaGen and Able, resulted in a severe negative impact on the Company's
stock price. As a result, the Company reached its limit of 75,000,000 authorized
shares. On March 4, 1998, the Company held a special meeting of stockholders and
approved a one for ten reverse split of its outstanding shares. As a result, at
the effective date of the reverse split, March 10, 1998, 75,000,000 shares of
common stock, $0.01 par value per share, were authorized, and approximately
7,500,000 were issued and outstanding. As of March 31, 1998, there were
14,667,951 shares of Common Stock outstanding. This increase is due to
conversions of preferred stock.
Management has initiated intensive reviews of its operations and is
implementing plans to cure defaults, raise additional equity, and improve the
liquidity and cash resources for general working capital purposes. Specifically,
at the corporate level, the Company has discontinued all R&D activity either
through terminating the programs or outlicensing the products to other
companies. The Company's lead product to date, NicErase(R)-SL, has been licensed
to Nastech Pharmaceutical, of Hauppauge, NY. The Company has reduced its
workforce by approximately 40 employees through termination and attrition. The
Company is also negotiating
22
<PAGE> 23
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (Continued)
to sublease all or part of its current facilities in Cambridge, MA to further
reduce its overhead expenses. In 1998, management expects to maintain a staff of
approximately seven full-time and four part-time employees to manage the
corporate functions of the Company. Management is also actively reviewing every
cost center for further cost reductions.
In November 1997, the Company initiated the same measures at its Able
manufacturing facility. The Company has reduced its workforce by 50 percent
through terminations and attrition. Management has actively initiated programs
to increase sales of its products to existing customers and is seeking to bring
back customers it has lost over the past two years. The Company is also
renegotiating its development agreement with Kali Laboratories to minimize
further cash outlays for product development. The Company has also received
offers from two service contractors for clinical testing in return for deferred
compensation, warrants and royalty payments on new products. The Company has
also initiated a modest internal R&D program at Able to develop prescription
drugs which do not require FDA approval. These "grandfathered" products are
expected to generate revenues by December 1998.
Management, in conjunction with key personnel at Superior, has
implemented a program to reverse the decline in the general business of the
Company. Specific actions taken at Superior include recruitment of key
personnel, review of the product line, reduction in the G&A expenses and an
aggressive program to seek competitive business in both the government and
corporate sectors. Superior is also negotiating supply agreements with its
primary vendors' to obtain more favorable terms which will improve the gross
margins and make Superior more competitive in the marketplace.
To date, the Company has met substantially all of its requirements for
capital through the sale of its securities. The negative impact of events in
1997 has severely limited the Company's ability to raise further capital in a
conventional sale of its securities. The Company plans to raise capital in order
to finance its working capital requirements. There can be no assurance that the
Company will be able to secure additional financing or that such financing will
be available on favorable terms. Specifically, the Company is negotiating with
an investment banker to provide the Company with intermediate financing. It is
anticipated that this financing will be either
23
<PAGE> 24
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (Continued)
repaid or converted into equity at the option of the Company at least 12 months
from the closing. Management believes that any financing which will create
additional common shares in the market would only result in further depression
of the stock price, making it even more difficult to raise capital. Therefore,
the Company intends to seek financing primarily from those sources who will be
long-term investors. In view of the Company's current stock price and its
financial condition, it is exceedingly difficult to find such investors.
However, the Company has had limited and preliminary discussions with investors
and the above-referenced investment banker and believes that the short-term
financing could become available over the next several weeks. The Company plans
to use the interim financing for general working capital, partial payment to the
creditors and the limited internal R&D program at Able. If the Company cannot
raise such financing, it may be forced to seek the protection of the bankruptcy
courts. See "Special Considerations."
The Company is also pursuing additional sources of capital for the
long-term needs of the Company. The Company has engaged a merchant banking firm
to seek direct investments into its subsidiaries, specifically Able
Laboratories, in return for equity and royalties. There is no assurance that
such financing will be available, and if available will be on terms favorable to
the Company. Furthermore, management has evaluated proposals which may include
raising additional capital through the sale of registered securities. The
Company has filed a registration statement on Form S-3 for the sale of Series C
and Series D Convertible Preferred Shares. The registration statement has not
been declared effective. The Company expected to raise substantial additional
capital through this arrangement. If the Company cannot raise such financing, it
may be forced to seek the protection of the bankruptcy courts. See "Special
Considerations."
The Company has also been working with its trade creditors to reduce
its obligations. A substantial majority of the creditors have accepted the
Company's payments plans, which include periodic payments, discounts of amounts
outstanding and acceptance of Company shares.
MANAGEMENT PLANS
The following represents management's plans to improve the financial
condition of the Company including curing defaults and obtaining waivers
wherever applicable. These plans are targeted to the specific areas listed
below.
24
<PAGE> 25
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (Continued)
GFL Performance Fund Limited - The Company has received an extension of
the Company's payment obligation on February 7, 1998 (the maturity date). The
Company is negotiating with GFL to retire this debt through conversion into
common stock over the next several months. This would reduce or eliminate the
cash payment obligation and reduce the total liabilities of the Company.
Sirrom and Odyssey - The Company continues to make monthly interest
payments on its obligations to Sirrom and Odyssey. The defaults under the loan
agreements include the company's filing for an extension of the due date of the
Form 10-K and certain other financial covenants.
Management plans to improve upon its filing requirements by dedicating
additional personnel to meet the reporting requirements. In addition, the
company is negotiating with the former stockholders of Superior to extend the
guaranteed stock payment due on June 17, 1998 which would require approximately
$4,000,000 in cash. The Company has had preliminary discussions with Sirrom and
Odyssey regarding the overall decline in the Company's stock price and the
effect on their warrants. Management intends to discuss and negotiate with its
lenders opportunities for participation in the Company's overall plan which
could restore the economic benefits and obtain continued cooperation of Sirrom
and Odyssey.
Superior Pharmaceutical Company - The Company has obtained a waiver
from the former stockholders of Superior, waiving and extending the payment
obligation on the note due on March 31, 1998. The Company is negotiating with
the former stockholders, alternate ways in which it can meet its obligation of a
guaranteed stock payment on June 17, 1998. These proposed alternatives include
extension of the obligation, reduction or elimination of the cash payment in
exchange for additional stock payments or converting the payment to convertible
Preferred Stock. The former stockholders have indicated their willingness to
entertain the alternative offers and work with management to come up with a
comprehensive solution to the payment obligations which secures their benefits
while allowing the Company to expand.
The Huntington National Bank- The Company is in discussions with
investment bankers to raise additional equity for its ongoing operations. The
net worth of the Company is less than $4,000,000 as required in the loan
agreement with the bank. However, in the past the bank has considered
subordinated debt, selling stockholder debt and the equity line available to the
Company under its Series D preferred shares as equity capital and therefore
applicable towards the net worth
25
<PAGE> 26
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (Continued)
requirements. Assuming that the bank continues to allow the subordinated debt in
the net worth calculation and that the Company is successful in obtaining
additional financing, the net worth deficiency will be corrected. In addition,
the waiver of the former Superior stockholders will, in managements view,
eliminate the defaults of the covenants with them.
SUSPENSION OF CONVERSION OF SERIES A AND B PREFERRED STOCK
On April 24, 1998, the Company suspended conversions of its Series A
and B preferred Stock into the Company's Common Stock. The purpose of this
suspension is to give the Company time to coordinate its efforts to negotiate
orderly settlements of these outstanding convertible securities.
SUBSEQUENT EVENTS
On April 3, 1998 the Company sold $500,000 of its Series D convertible
preferred stock to an unaffiliated investor. In connection with this financing,
the investor also received an 8% debenture for $87,500.
On April 30, 1998 the Company borrowed $250,000 from an investor as a
bridge loan. The loan is to be repaid from the proceeds of future private
placements to be completed by the Company. The loan is secured by the pledge of
substantially all of the common stock held by the Company's Chief Executive
Officer and the Executive Vice President. If the Company is unable to repay
this loan, the investor has an option to convert this loan into Series D
preferred stock.
On April 30, 1998 the Company's Board of Directors unanimously voted to
sell a portion of spin-off its majority-owned subsidiary, BioTrack, Inc. The
Board, based on discussions with several potential investors of the Company as
well as of BioTrack, believes that this action will facilitate the future
financing of both companies. The Company's equity in BioTrack will be reduced to
approximately 20% and the balance will be set aside for the inventors of the
technology, investors and the BioTrack management.
26
<PAGE> 27
DYNAGEN, INC.
PART II. OTHER INFORMATION
-------------------------------------------------------------
Item 2. Changes in Securities
a. Reverse Stock Split - On March 4, 1998 the Company's
stockholders approved a 1-for-10 reverse stock split
of its issued and outstanding common shares. All
common stock information presented herein has been
retroactively adjusted to reflect the reverse stock
split.
b. Not applicable.
c. Sales of Unregistered Securities - In the three
months ended March 31, 1998, the Company entered
into agreements to sell
15,000 shares of Series D Preferred Stock to
unaffiliated accredited investors in private
placements in reliance on the exemption from
registration provided by Section 4(2) of the
Securities Act. The firm of Jesup and Lamont acted
as placement agent for the sale of these
securities. The Company sold 10,000 shares of
Series D Preferred stock and received $920,544 in net
proceeds during the quarter ended March 31,1998,and
sold the remaining 5,000 shares in April, 1998. The
terms of the subscription provided that the shares of
Series D Preferred Stock would be convertible into
Common Stock at a discount on the average closing bid
price of the Company's Common Stock as reported by
the Nasdaq SmallCap Market (or such other exchange
on which the Common Stock is then traded) for the
five trading days immediately preceding the date on
which the Series D Preferred Stock is converted. In
connection with the sale of the Series D Preferred
Stock the Company also issued to the investors 8%
convertible debentures in the aggregate original
principle amount of $503,500 and a warrant to
purchase a number of shares of Common Stock equal to
1% of the issued and outstanding Common Stock at an
exercise price of $150,000.
Item 3. Defaults on Senior Securities
The Company has incurred recurring losses from operations
resulting in an accumulated deficit of $38,235,531 and a
working capital deficiency of $11,062,484 at March 31, 1998.
In addition, the Company is in default with respect to certain
covenants in its debt agreements and obligated to make
payments as follows:
GFL Performance Fund Limited - The Company issued an 8%
Convertible Note to GFL Performance Fund in the amount of
$2,000,000 in February 1996. The balance of this note,
$535,000 was due on February 7, 1998, however, the lender
granted an extension on the payment of this note. In
connection with this extension the Company agreed to increase
the principal amount due to $789,755. The note and the
increased principal amount are reflected as current
liabilities in the balance sheet at March 31, 1998.
27
<PAGE> 28
DYNAGEN, INC.
PART II. OTHER INFORMATION
-------------------------------------------------------------
Sirrom Capital Corporation ("Sirrom") and Odyssey Investment
Partners, L.P. ("Odyssey") - The Company issued secured
promissory notes in the aggregate principal amount of
$3,000,000 on June 18, 1997 and were due June 17, 2002. In
addition, the Company issued stock warrants to purchase in the
aggregate 400,000 shares of the Company's common stock and
granted Sirrom and Odyssey the right to sell to the Company
the warrants (put warrants) under a put and substitution
agreement. At the time of issuance, $702,000 of the proceeds
was allocated to the put warrants, resulting in a discount on
the promissory notes.
The discount on the notes was being amortized to expense over
the term of the promissory notes. The Company is in default of
certain covenants in the loan agreement and has not obtained a
waiver of the defaults from the lender. Accordingly, the total
principal amount of the loan, $3,000,000, has been classified
as a current liability and the unamortized discount on the
loan has been charged to expense.
Superior Pharmaceutical Company - The Company acquired
Superior on June 18, 1997 for $16,500,000. The purchase price
was paid as follows: $6,500,000 in cash, $5,000,000 of 9.5%
secured promissory notes to the former Superior stockholders
due in quarterly installments through June 30, 2000 and common
stock of the Company with a guaranteed value of $5,000,000.
A quarterly payment on the secured promissory notes was due on
March 31, 1998 and the Company received a waiver and extension
from the former stockholders of Superior. The quarterly
payment of principal and interest was extended to May 16,
1998. The total unpaid amount of the secured promissory notes
$3,766,667 has been classified as a current liability.
The Company issued 1,666,667 shares of common stock to the
former Superior stockholders on the closing date. The
Agreement and plan of merger with the Superior stockholders
provided that at the first anniversary of the closing, June
18, 1998, the Superior stockholders would receive an
additional 1,666,667 shares of common stock, if the Company's
stock price was equal to or less than $1.50. Any difference
between the value of
28
<PAGE> 29
DYNAGEN, INC.
PART II. OTHER INFORMATION
-------------------------------------------------------------
the stock received and the $5,000,000 guaranteed value is to
be paid in cash. The Company does not anticipate that the
common stock price will reach the specified level of $1.50 by
June 18, 1998. Accordingly, the Company has accrued a current
liability to the former Superior stockholders in the amount of
$4,083,000 at March 31, 1998 and reduced the amount originally
added to additional paid-in capital at the time of
acquisition.
The Huntington National Bank - The Company's subsidiary,
Superior, has a line of credit with the Huntington National
Bank in the amount of $9,000,000. At December 31, 1997,
Superior is in default of certain loan covenants in the loan
and security agreement with the bank. Superior is in
negotiations with the bank with respect to the defaults, but
has not received a waiver of the defaults at the present time.
The Company has guaranteed the loan to the bank. The loan and
security agreement with the bank requires the Company to
achieve a tangible net worth, exclusive of the tangible net
worth of Superior, of $4,000,000, which the Company has not
achieved at March 31, 1998.
The loan and security agreement with the bank allowed Superior
to make distributions to the Company in amounts sufficient to
enable the Company to pay the debt service due to the former
stockholders of Superior, provided, however, that such
permitted payments cannot be made by Superior in the event of
a default.
Item 4. Submission of Matters to a Vote of Security Holders
On March 4, 1998, the Company held a Special Meeting of
Stockholders. At this meeting, the stockholders acted upon the
following proposals: (i) to consider and act upon a proposed
plan of recapitalization that will result in a one-for-ten
reverse split of the Company's Common Stock; and (ii)
conditional on approval of the above proposal, consider and
act upon a proposal to approve the Company's 1998 Stock Option
Plan. All of the above matters were approved by the
stockholders.
The voting was as follows:
29
<PAGE> 30
DYNAGEN, INC.
PART II. OTHER INFORMATION
-------------------------------------------------------------
proposal in the manner disclosed in the Proxy Statement and
Proxy. On the record date, December INSERT, 1997, INSERT
shares of the Company's Common Stock were issued and
outstanding.
Voting results were as follows:
<TABLE>
<CAPTION>
Matter For Against Withheld Non-Voted
------ --- ------- -------- ---------
<S> <C> <C> <C> <C>
Common Stockholders
-------------------
One-for-ten reverse
split of Common Stock 40,543,557 2,978,913 390,182 200
1998 Stock Plan 19,305,940 4,398,351 661,331 19,547,230
Preferred Stockholders
----------------------
One-for-ten reverse 43,560,441 - - -
split of Common Stock 43,560,441 - - -
1998 Stock Plan
</TABLE>
30
<PAGE> 31
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
The following exhibits, required by Item 601 of Regulation S-K, are
filed as part of this Quarterly Report on Form 10-Q. Exhibit numbers, where
applicable, in the left column correspond to those of Item 601 of Regulation
S-K.
Exhibit
No. Description of Exhibit
- ------- ----------------------
2.2 Amendment No. 1 to the Asset Purchase Agreement dated
February 26, 1998 by and among DynaGen, Inc., Superior
Pharmaceutical Company, Generic Distributors Incorporated,
Generic Distributors Limited Partnership, United Pharmacists,
Inc., and Mr. Donald Couvillon (filed as Exhibit 2.2 to the
Company's Current Report on Form 8-K filed on March 17, 1998)
4a Subscription Agreement Dated February 26, 1998 with
Sovereign Partners
4b 7% Debenture Dated February 26, 1998 in the name of
Sovereign Partners
4c Registration Rights Agreement Dated February 26, 1998 with
Sovereign Partners
4d Agreement dated March 19, 1998 with Endeavour Capital
Fund S.A.
4e 8% Debenture Dated March 19, 1998 in favor of Endeavour
Capital Fund S.A.
4f Warrant Dated March 19, 1998 in the name of Endeavour
Capital Fund S.A.
4g Agreement dated March 31, 1998 with Sovereign Partners and
Dominion Capital Fund, Ltd.
4h 8% Debenture Dated March 31, 1998 in the name of Sovereign
Partners
4i 8% Debenture Dated March 31, 1998 in the name of Dominion
Capital Fund, Ltd.
4j Certificate of Designations, Preferences and Rights of
Series E Preferred Stock (filed as Exhibit 4.5 to the
Company's Current Report on Form 8-K filed on March 17, 1998
and incorporated herein by reference)
4k Certificate of Designations, Preferences and Rights of
Series F Preferred Stock (filed as Exhibit 4.6 to the
Company's Current Report on Form 8-K filed on March 17, 1998
and incorporated herein by reference)
31
<PAGE> 32
10a Credit Agreement by and between DynaGen, Inc., Generic
Distributors Incorporated, Able Laboratories, Inc., and Fleet
National Bank dated February 26, 1998 (filed as Exhibit 4.1 to
the Company's Current Report on Form 8-K filed on March 17,
1998 and incorporated herein by reference)
10b Term Note issued by Generic Distributors Incorporated to
Fleet National Bank dated February 26, 1998 (filed as Exhibit
4.2 to the Company's Current Report on Form 8-K filed on March
17, 1998 and incorporated herein by reference)
10c Pledge and Security Agreement by and between DynaGen, Inc.
and Fleet National Bank dated February 26, 1998 (filed as
Exhibit 4.3 to the Company's Current Report on Form 8-K filed
on March 17, 1998 and incorporated herein by reference)
10d Security Agreement by and between Generic Distributors
Incorporated and Fleet National Bank dated February 26, 1998
(filed as Exhibit 4.4 to the Company's Current Report on Form
8-K filed on March 17, 1998 and incorporated herein by
reference)
27 Financial Data Schedules (filed in electronic form only)
- ---------------
* filed herewith
(b) Reports on Form 8-K:
During the quarter ended March 31, 1998, the Company filed on March 17,
1998 a Current Report on Form 8-K dated March 2, 1998 reporting the Company's
acquisition of the assets of Generic Distributors Limited Partnership.
32
<PAGE> 33
Exhibit Index
Exhibit
No. Description of Exhibit
- ------- ------------------------
2.2 Amendment No. 1 to the Asset Purchase Agreement dated
February 26, 1998 by and among DynaGen, Inc., Superior
Pharmaceutical Company, Generic Distributors Incorporated,
Generic Distributors Limited Partnership, United Pharmacists,
Inc., and Mr. Donald Couvillon (filed as Exhibit 2.2 to the
Company's Current Report on Form 8-K filed on March 17, 1998)
4a Subscription Agreement Dated February 26, 1998 with
Sovereign Partners
4b 7% Debenture Dated February 26, 1998 in the name of
Sovereign Partners
4c Registration Rights Agreement Dated February 26, 1998 with
Sovereign Partners
4d Agreement dated March 19, 1998 with Endeavour Capital Fund
S.A.
4e 8% Debenture Dated March 19, 1998 in favor of Endeavour
Capital Fund S.A.
4f Warrant Dated March 19, 1998 in the name of Endeavour
Capital Fund S.A.
4g Agreement dated March 31, 1998 with Sovereign Partners and
Dominion Capital Fund, Ltd.
4h 8% Debenture Dated March 31, 1998 in the name of Sovereign
Partners
4i 8% Debenture Dated March 31, 1998 in the name of Dominion
Capital Fund, Ltd.
4j Certificate of Designations, Preferences and Rights of
Series E Preferred Stock (filed as Exhibit 4.5 to the
Company's Current Report on Form 8-K filed on March 17, 1998
and incorporated herein by reference)
4k Certificate of Designations, Preferences and Rights of
Series F Preferred Stock (filed as Exhibit 4.6 to the
Company's Current Report on Form 8-K filed on March 17, 1998
and incorporated herein by reference)
10a Credit Agreement by and between DynaGen, Inc., Generic
Distributors Incorporated, Able Laboratories, Inc., and Fleet
National Bank dated February 26, 1998 (filed as Exhibit 4.1 to
the Company's Current Report on Form 8-K filed on March 17,
1998 and incorporated herein by reference)
33
<PAGE> 34
10b Term Note issued by Generic Distributors Incorporated to Fleet
National Bank dated February 26, 1998 (filed as Exhibit 4.2 to
the Company's Current Report on Form 8-K filed on March 17,
1998 and incorporated herein by reference)
10c Pledge and Security Agreement by and between DynaGen, Inc.
and Fleet National Bank dated February 26, 1998 (filed as
Exhibit 4.3 to the Company's Current Report on Form 8-K filed
on March 17, 1998 and incorporated herein by reference)
10d Security Agreement by and between Generic Distributors
Incorporated and Fleet National Bank dated February 26, 1998
(filed as Exhibit 4.4 to the Company's Current Report on Form
8-K filed on March 17, 1998 and incorporated herein by
reference)
27 Financial Data Schedules (filed in electronic form only)
- ---------------
* filed herewith
34
<PAGE> 35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNAGEN, INC.
By:
--------------------------------------------
Indu A. Muni, Ph.D.
President, Chief Executive Officer, and
Treasurer (Principal Executive, Financial, and
Accounting Officer)
Date: May INSERT, 1998
35
<PAGE> 1
Exhibit 4a
EXECUTION COPY
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "AGREEMENT"), dated as of February 26,
1998, by and among DYNAGEN, INC., a corporation organized under the laws of the
State of Delaware (the "COMPANY"), with headquarters located at 840 Memorial
Drive, Cambridge, Massachusetts 02139 and Sovereign Partners, a Delaware limited
partnership ("PURCHASER").
WHEREAS:
A. The Company and Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "SECURITIES
ACT");
B. The Company desires to sell and issue to Purchaser as ordinary
course bridge financing, and Purchaser desires to purchase, upon the terms and
conditions stated in this Agreement, a 7% Convertible Debenture Due February 26,
1999 of the Company (the "DEBENTURE") convertible into shares of common stock,
par value $0.01 per share, of the Company (the "COMMON STOCK") in accordance
with the terms and conditions set forth therein. The form of the Debenture,
including the terms upon which such Debenture are convertible into shares of
Common Stock, is attached hereto as Exhibit A. The shares of Common Stock
issuable upon conversion of the Debenture or otherwise pursuant to the Debenture
are referred to herein as the "CONVERSION SHARES." The Debenture and the
Conversion Shares are collectively referred to herein as the "SECURITIES."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit B (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws;
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURE
a. Purchase of Debenture. On the Closing Date (as defined below),
subject to the satisfaction (or waiver) of the conditions set forth in Sections
6 and 7 below, the Company shall issue and sell to Purchaser and Purchaser
agrees to purchase from the Company, (i) a Debenture in such original principal
amount as is set forth on the signature page hereto Purchaser represents and
agrees that neither it nor its affiliates has entered or will enter into any
transactions with respect to any securities of the Company (other than the
transactions contemplated by this Agreement) on the Closing Date or the three
trading days thereafter. The purchase price (the "PURCHASE PRICE") for the
Debenture shall be as set forth on the execution page hereto.
<PAGE> 2
b. Form of Payment. On the Closing Date, Purchaser shall pay the
aggregate Purchase Price for the Debenture by wire transfer to the Company, in
accordance with the Company's written wiring instructions, against delivery of
the duly executed Debenture being purchased by such Purchaser hereunder and the
Company shall deliver such Debenture against delivery of such aggregate Purchase
Price. Within twenty (20) days after the second trading day following the
Closing Date, the Company shall deliver to Purchaser a duly executed certificate
representing the Common Shares purchased by Purchaser.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Debenture pursuant to this Agreement (the
"CLOSING DATE") shall be 12:00 noon eastern time on February 26, 1998, or such
other time as may be mutually agreed upon by the Company and Purchaser. The
closing shall occur at the offices of Foley, Hoag & Eliot LLP, One Post Office
Square, Boston, MA 02109.
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants to the Company that:
a. Investment Purpose. Purchaser is purchasing the Debenture for
Purchaser's own account for investment only and not with a present view towards
the public sale or distribution thereof, except pursuant to sales that are
exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act. Purchaser understands that Purchaser must
bear the economic risk of this investment indefinitely, unless the Securities
are registered pursuant to the Securities Act and any applicable state
securities or blue sky laws or an exemption from such registration is available,
and that the Company has no present intention of registering any such Securities
other than as contemplated by the Registration Rights Agreement.
b. Accredited Investor Status. Purchaser is an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act.
c. Reliance on Exemptions. Purchaser understands that the Debenture and
Conversion Shares are being offered and sold to Purchaser in reliance upon
specific exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying upon the truth and
accuracy of, and Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of Purchaser set forth herein in
order to determine the availability of such exemptions and the eligibility of
Purchaser to acquire the Debenture and Common Shares.
d. Information. Purchaser and its counsel or representative, if any,
have been furnished all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Debenture which have been specifically requested by Purchaser or its counsel or
representative. Purchaser and its counsel, if any, have been afforded the
opportunity to ask questions of the Company and have received what Purchaser
believes to be complete and satisfactory answers to any such inquiries. Neither
such inquiries nor any other due diligence
2
<PAGE> 3
investigation conducted by Purchaser or its counsel or any of its
representatives shall modify, amend or affect Purchaser's right to rely on the
Company's representations and warranties contained in Section 3 below. Purchaser
understands that Purchaser's investment in the Securities involves a high degree
of risk.
e. Governmental Review. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be transferred unless (a) subsequently registered thereunder, or (b)
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration, including without limitation Rule 144 promulgated under the
Securities Act (or a successor rule) ("RULE 144"), or (c) transferred without
consideration to an affiliate of Purchaser; (ii) any sale of such Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any resale of such
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the Securities Act) may require compliance with some other exemption under the
Securities Act or the rules and regulations of the Securities and Exchange
Commission (the "SEC") thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement).
g. Legends. Purchaser understands that the Debenture and, until such
time as the Conversion Shares have been registered under the Securities Act as
contemplated by the Registration Rights Agreement or otherwise may be sold by
Purchaser pursuant to Rule 144 without any restriction as to the public resale
thereof, the certificates for the Conversion Shares, may bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Securities):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be sold, transferred or assigned in
the absence of an effective registration statement for the securities
under said Act, or an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless the Company is
provided with reasonable assurances that the securities were sold
pursuant to Rule 144 under said Act.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend upon conversion of the Debenture to the holder
of any Security upon which it is stamped,
3
<PAGE> 4
if (a) the resale of such Security is registered under the Securities Act, or
(b) such holder provides the Company with an opinion of counsel, in form,
substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Security may
be made without registration under the Securities Act or (c) such holder
provides the Company with reasonable assurances that such Security has been sold
pursuant to Rule 144 or can be sold pursuant to Rule 144 without any restriction
as to the number of Securities acquired as of a particular date that can then be
immediately sold. Purchaser agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, pursuant
to an effective registration statement and to deliver a prospectus in connection
with such sale (if and to the extent such delivery is required) or in compliance
with an exemption from the registration requirements of the Securities Act. In
the event the above legend is removed from any Security and thereafter the
effectiveness of a registration statement covering such Security is suspended or
the Company determines that a supplement or amendment thereto is required by
applicable securities laws, then upon reasonable advance notice to Purchaser the
Company may require that the above legend be placed on any such Security that
cannot then be sold pursuant to an effective registration statement or Rule 144
without any restriction as to the number of Securities acquired as of a
particular date that can then be immediately sold, which legend shall be removed
when such Security has been sold pursuant to Rule 144 or may be sold pursuant to
an effective registration statement or Rule 144 without any restriction as to
the number of Securities acquired as of a particular date that can then be
immediately sold.
h. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable in accordance with their respective terms.
i. Location of Purchaser. Purchaser has advised the Company in writing
with respect to the jurisdictions wherein the investment decision regarding
Purchaser's acquisition of the Debenture has been made.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser that:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
where the failure so to qualify would have a Material Adverse Effect. "MATERIAL
ADVERSE EFFECT" means any material adverse effect on the operations, properties,
condition (financial or otherwise) or prospects of the Company and its
subsidiaries, taken as a whole on a consolidated basis or on the ability of the
Company to perform its obligations in connection with the transactions
contemplated hereby on a timely basis.
b. Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement and the
Registration Rights Agreement, to issue
4
<PAGE> 5
and sell the Debenture in accordance with the terms hereof, and to issue the
Conversion Shares upon conversion of the Debenture in accordance with their
terms. The Company's board of directors has voted to place before the Company's
stockholders, at a special meeting to be held on or about March 4, 1998 (the
"STOCKHOLDERS' MEETING"), a proposal to effect a recapitalization of the Company
which would result in a one-for-ten reverse stock split of the Company's Common
Stock (the "REVERSE SPLIT"). If the stockholders do not approve the Reverse
Split, the Company will have insufficient shares of authorized and unissued
Common Stock to meet its obligations under this Agreement. Except for the
matters to be voted on at the Stockholders' Meeting and subject to the
stockholders' approval of the Reverse Split and its subsequent effectiveness,
(i) the execution, delivery and performance of this Agreement, the Registration
Rights Agreement and the Debenture by the Company and the consummation by it of
the transactions contemplated hereby and thereby (including without limitation
the issuance of the Debenture and the issuance and reservation for issuance of
the Conversion Shares) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board or
Directors, or its stockholders is required ; (ii) this Agreement has been duly
executed and delivered by the Company; and (iii) this Agreement constitutes,
and, upon execution and delivery by the Company of the Registration Rights
Agreement and the Debenture, such agreement and such instrument will constitute,
valid and binding obligations of the Company enforceable against the Company in
accordance with their respective terms.
c. Issuance of Securities. The Debenture is duly authorized and, upon
issuance in accordance with the terms of this Agreement, will be validly issued
and free from all taxes, liens, claims and encumbrances and will not be subject
to preemptive rights or other similar rights of stockholders of the Company.
Subject to approval of the Reverse Split at the Stockholders' Meeting and the
subsequent effectiveness thereof, issuance of the Conversion Shares has been
duly authorized by the Company's Board of Directors, will thereafter be reserved
for issuance upon conversion of the Debenture in accordance with the terms
thereof, will be validly issued, fully paid and non-assessable, and free from
all taxes, liens, claims and encumbrances and will not be subject to preemptive
rights or other similar rights of stockholders of the Company.
d. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Debenture by the Company,
the performance by the Company of its obligations hereunder and thereunder, and
the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance and reservation for
issuance, as applicable, of the Debenture and the Conversion Shares) will not
(i) result in a violation of the Certificate of Incorporation or By-laws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including U.S. federal and state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries is bound or affected (except for
such conflicts, defaults, terminations, amendments, accelerations, cancellations
and violations as would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect). Neither the
Company nor any of its subsidiaries is in violation of its Certificate of
Incorporation or other organizational documents and neither the Company nor any
of its subsidiaries is in default (and no
5
<PAGE> 6
event has occurred which, with notice or lapse of time or both, would put the
Company or any of its subsidiaries in default) under, nor has there occurred any
event giving others (with notice or lapse of time or both) any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, except for defaults relating to or resulting from the Company's
inadequate number of authorized and unissued Common Stock and possible defaults
or rights as would not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect. The businesses of the Company
and its subsidiaries are not being conducted, and shall not be conducted so long
as Purchaser owns any of the Securities, in violation of any law, ordinance or
regulation of any governmental entity, except for possible violations the
sanctions for which either singly or in the aggregate would not have or
reasonably be expected to result in a Material Adverse Effect. Except as
specifically contemplated by this Agreement and except for the filing of a Form
D with the Securities and Exchange Commission, the filing of the registration
statement contemplated by the Registration Rights Agreement under the Securities
Act, any filings required by applicable state securities laws and the filing of
an application with Nasdaq (as defined below) to list or approve for quotation
the Conversion Shares, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self regulatory agency in order for it
to execute, deliver or perform any of its obligations under this Agreement, the
Registration Rights Agreement or the Debenture, in each case in accordance with
the terms hereof or thereof. The Company has been notified that it is not in
compliance with new listing requirements of the Nasdaq SmallCap Market
("NASDAQ") and the Common Stock is subject to delisting by Nasdaq.
e. SEC Documents, Financial Statements. Since December 31, 1994, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT") (all of the foregoing, filed prior to the date hereof and after December
31, 1994, and all exhibits included therein and financial statements and
schedules thereto and documents (other than exhibits) incorporated by reference
therein together with any registration statements or other documents filed by
the Company pursuant to the Securities Act prior to the date hereof and all news
releases by the Company, being hereinafter referred to herein as the "SEC
DOCUMENTS"). The Company has made available to Purchaser true and complete
copies of the SEC Documents, except for such exhibits, schedules and
incorporated documents. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act or the
Securities Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with U.S.
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may include footnotes or may not be condensed or
summary
6
<PAGE> 7
statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to the date of the most recent financial
statements included in the SEC Documents and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company.
f. Absence of Litigation. Except as disclosed in the SEC Documents or
otherwise disclosed to Purchaser, there is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its subsidiaries, threatened against or affecting the Company, any of
its subsidiaries, or any of their respective directors or officers in their
capacities as such, wherein an unfavorable decision, ruling or finding would or
could reasonably be expected to result in a Material Adverse Effect.
g. Disclosure. All information relating to or concerning the Company
set forth in this Agreement or provided to Purchaser pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed (assuming for this purpose
that the Company's Exchange Act Reports are being incorporated into an effective
registration statement filed by the Company under the Securities Act).
h. Current Public Information. The Company is currently eligible to
register the resale of its Common Stock on a registration statement on Form S-3
under the Securities Act. The Company has been notified that it is not in
compliance with new listing requirements of the Nasdaq SmallCap Market
("NASDAQ") and the Common Stock is subject to delisting by Nasdaq.
i. No General Solicitation. Neither the Company nor any person acting
for the Company has conducted any "GENERAL SOLICITATION," as such term is
defined in Regulation D, with respect to any of the Securities being offered
hereby.
j. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act.
7
<PAGE> 8
k. No Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby.
l. Acknowledgment of Dilution. The number of Conversion Shares issuable
upon conversion of the Debenture may increase substantially in certain
circumstances, including the circumstance wherein the trading price of the
Common Stock declines. The Company acknowledges that its obligation to issue
Conversion Shares upon conversion of the Debenture in accordance with its terms
is absolute and unconditional, regardless of the dilution that such issuance may
have on the ownership interests of other stockholders.
4. COVENANTS
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and 7 of this Agreement.
b. Blue Sky Laws. The Company shall take such action as the Company or
Purchaser shall reasonably determine is necessary to qualify the Securities for
sale to Purchaser pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States or obtain exemption
therefrom, and shall provide evidence of any such action so taken to Purchaser.
c. Reporting Status. So long as Purchaser beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Debenture and Conversion Shares for internal working capital purposes,
mergers and acquisitions, investments and general corporate purposes.
e. Financial Information. Upon the written request of Purchaser while
holding any Securities, the Company shall send the following reports to
Purchaser: a copy of its Annual Report on Form 10-K, its Quarterly Reports on
Form 10-Q, any proxy statements, any Current Reports on Form 8-K and any press
releases issued by the Company or any of its subsidiaries.
f. Reservation of Shares. Subject to, and after obtaining, the approval
of the stockholders of the recapitalization describe in Section 3(b) hereof at
the March 4, 1998 meeting, Company shall reserve and shall at all times
thereafter have authorized and reserved for the purpose of issuance a sufficient
number of shares of Common Stock to provide for the full conversion of the
Debenture and issuance of the Conversion Shares in connection therewith and as
otherwise required by the Debenture.
g. Corporate Existence. So long as Purchaser beneficially owns the
Debenture, the Company shall maintain its corporate existence, except in the
event of a merger, consolidation or sale of all or substantially all of the
Company's assets, as long as the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith regardless of
whether or not the Company would
8
<PAGE> 9
have had a sufficient number of shares of Common Stock authorized and available
for issuance in order to effect the conversion of the Debenture as of the date
of such transaction and (ii) is a publicly traded corporation whose common stock
is listed for trading on the Nasdaq Stock Market, the New York Stock Exchange or
The American Stock Exchange.
5. TRANSFER AGENT INSTRUCTIONS
The Company shall instruct its transfer agent to issue certificates,
registered in the name of Purchaser or its nominee, for the Conversion Shares in
such amounts as specified from time to time by Purchaser to the Company upon
conversion of the Debenture. Prior to registration of the Conversion Shares
under the Securities Act or resale of such Securities under Rule 144, all such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement. The Company warrants that no instruction other than such instructions
referred to in this Section 5, and stop transfer instructions to give effect to
Section 2(f) hereof in the case of the Conversion Shares prior to registration
of the Conversion Shares under the Securities Act, will be given by the Company
to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement and the Debenture.
Nothing in this Section shall affect in any way Purchaser's obligations and
agreement set forth in Section 2(f) hereof not to resell the Securities except
pursuant to an effective registration statement (and to deliver a prospectus in
connection with such a sale) or in compliance with an exemption from the
registration requirements of applicable securities law. If Purchaser provides
the Company with an opinion of counsel, which opinion of counsel shall be in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from registration, the Company
shall permit the transfer, and, in the case of the Conversion Shares, promptly
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by a Purchaser. The Company acknowledges that
a breach by it of its obligations hereunder will cause irreparable harm to a
Purchaser by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section 5, that a Purchaser shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
The obligation of the Company hereunder to issue and sell the Debenture
to Purchaser at the closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
(a) Purchaser shall have executed the execution page to this Agreement
and the Registration Rights Agreement, and delivered the same to the Company.
9
<PAGE> 10
(b) Purchaser shall have delivered the Purchase Price for the
Debenture.
(c) The representations and warranties of Purchaser shall be true and
correct.
(d) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
7. CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE
The obligation of Purchaser hereunder to purchase the Debenture on the
Closing Date is subject to the satisfaction of each of the following conditions,
provided that these conditions are for Purchaser's sole benefit and may be
waived by Purchaser at any time in Purchaser's sole discretion:
(a) The Company shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered the same to
Purchaser.
(b) The Company shall have delivered to Purchaser a duly executed
Debenture in the principal amount being purchased by Purchaser in accordance
with Section 1(b) above.
(c) The representations and warranties of the Company shall be true and
correct as of the Closing Date and the Company shall have performed, satisfied
and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.
(d) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
8. GOVERNING LAW; MISCELLANEOUS
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The parties
irrevocably consent to the jurisdiction of the United States District Courts for
the Southern District of New York in any suit or proceeding based on or arising
under this Agreement and irrevocably agree that all claims in respect of such
suit or proceeding may be determined in such court. The parties irrevocably
waive the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The parties further agree that service of process mailed by first
class mail shall be deemed in every respect effective service of process in any
suit or proceeding arising hereunder. Nothing herein shall affect Purchaser's
right to serve process in any other manner permitted by law. The parties agree
that a final non-appealable judgment in any such
10
<PAGE> 11
suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor Purchaser make any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived other than by an instrument in writing signed by
the party to be charged with enforcement and no provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and
Purchaser.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier, overnight delivery
service or by confirmed telecopy, and shall be effective five days after being
placed in the mail, if mailed, or upon receipt or refusal of receipt, if
delivered personally or by courier, overnight delivery service or confirmed
telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
Dynagen, Inc.
840 Memorial Drive
Cambridge, Massachusetts 02139
Telecopy: (617) 354-3902
Attention: Dhananjay G. Wadekar
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Telecopy: (617) 832-7000
Attention: David A. Broadwin, Esq.
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<PAGE> 12
If to Purchaser, to :
Sovereign Partners
Executive Pavilion
90 Grove Street
Richfield, CT 06877
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other. This
provision shall not limit Purchaser's right to transfer the Securities pursuant
to the terms of the Debenture, the Registration Rights Agreement and this
Agreement or to assign Purchaser's rights hereunder to any such transferee, nor
shall this provision limit the right of Purchaser to transfer or assign its
rights under such agreements and instruments to an affiliate (provided that
Purchaser makes no more than two (2) such transfers), provided that the
representations and warranties set forth in Section 2 are true and correct with
respect to such affiliate or managed account.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The representations and warranties of the parties and the
agreements and covenants set forth in Sections 2, 3, 4 and 8 shall survive the
closing hereunder and any conversion of the Debenture, notwithstanding any due
diligence investigation conducted by or on behalf of Purchaser.
j. Publicity. The Company and Purchaser shall have the right to approve
before issuance any press releases, SEC, Nasdaq or NASD filings, or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of Purchaser, to describe the transactions contemplated hereby in any
Form 10-Q or Form 10-K filed by it.
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 13
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
SOVEREIGN PARTNERS
By: /s/ Stephen Hicks
Name: Stephen Hicks
Title:_________________________
SUBSCRIPTION AMOUNT
<TABLE>
<S> <C>
Principal Amount of Debenture: $500,000
Purchase Price: $500,000
</TABLE>
DYNAGEN, INC.
By: /s/ Dhananjay G. Wadekar
Name: Dhananjay G. Wadekar
Title: Executive Vice President
<PAGE> 1
EXHIBIT 4b
EXECUTION COPY
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.
7% CONVERTIBLE DEBENTURE DUE FEBRUARY 26, 1999
THIS 7% CONVERTIBLE DEBENTURE ("Debenture") is issued by DynaGen,
Inc.,a corporation duly organized and existing under the laws of the State of
Delaware and having its principal address at 840 Memorial Drive, Cambridge,
Massachusetts 02139 (the "Company").
FOR VALUE RECEIVED, the Company promises to pay to Sovereign Partners,
having an address at Executive Pavilion, 90 Grove Street, Richfield, Connecticut
06877, the holder hereof, or its order (the "Holder"), the principal sum of Five
Hundred Thousand United States Dollars (U.S. $500,000) on February 26, 1999 (the
"Maturity Date") and to pay interest on the principal sum outstanding under this
Debenture, at the rate of 7% per annum due and payable in arrears on the
Maturity Date. Interest shall be calculated based on a 360 day year of twelve
equal months. Accrual of interest shall commence on the date hereof and shall
continue until payment in full of the principal sum has been made. This
Debenture is subordinate to all secured indebtedness of the Company.
This Debenture is subject to the following additional provisions:
1. Exchange. The Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different denominations, of not less than
$100,000 (or the total principal amount, if less than $100,000) each as
requested by the Holder surrendering the same. No service charge will be made
for such exchange.
2. Transfers. This Debenture may be transferred or exchanged in the
United States only in compliance with the Securities Act of 1933, as amended
(the "Securities Act"), and applicable state securities laws and in accordance
with other applicable provisions hereof. Prior to due presentment for transfer
of this Debenture, the Company may treat the person in whose name this Debenture
is duly registered as the owner hereof for the purpose of receiving payment as
herein provided and all other purposes, whether or not this Debenture is then
overdue, and the Company shall not be affected by notice to the contrary.
3. Definitions. For purposes hereof, the following terms shall have the
following meanings:
<PAGE> 2
"Closing Date" shall mean the date of original issuance of this
Debenture.
"Common Stock" shall mean the Common Stock, par value $.01 per
share, of the Company.
"Conversion Date" shall have the meaning set forth in Paragraph
4(c)(i).
"Conversion Date Market Price" shall mean, at any Conversion Date
seventy-five percent (75%) of the average Market Price for Shares of Common
Stock for the five trading days immediately preceding the Conversion Date.
"Conversion Notice" shall have the meaning set forth in Paragraph
4(c).
"Conversion Rate" shall have the meaning set forth in Paragraph
4(b).
"Event of Default" shall have the meaning set forth in Paragraph 16.
"Market Price for Shares of Common Stock" shall mean the price of
one share of Common Stock determined as follows:
(i) If the Common Stock is listed on the Nasdaq SmallCap
Market, the closing bid price on the date of valuation, as reported by Bloomberg
Financial Markets; or
(ii) If the Common Stock is listed on any other national
securities exchange, the closing bid price on the date of valuation, as reported
by Bloomberg Financial Markets; or
(iii) If neither (i) nor (ii) apply, but the Common Stock is
quoted in the over-the-counter market on the pink sheets or bulletin board, the
lowest sales price on the date of valuation, as reported by Bloomberg Financial
Markets; or
(iv) If none of clause (i), (ii) or (iii) above applies, the
market value as determined by an independent nationally recognized investment
banking firm or financial advisor retained in good faith by the Company for such
purpose, taking into consideration, among other factors, the earnings history,
book value and prospects for the Company, and the prices at which shares of
Common Stock recently have been traded. Such determination shall be conclusive
and binding on all persons.
"Outstanding Amount" shall mean the principal sum outstanding under
this Debenture and all accrued but unpaid interest thereon.
"Registration Rights Agreement" shall mean that certain Registration
Rights Agreement, dated February 26, 1998, between the Company and Sovereign
Partners.
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<PAGE> 3
4. Conversion. This Debenture is subject to conversion as follows:
(a) (i) Holder's Right to Convert. This Debenture shall be
convertible at any time and from time to time commencing with the 90th day after
the Closing Date and until the Maturity Date, in whole or in part, at the option
of the Holder hereof, into fully paid, validly issued and nonassessable shares
of Common Stock; provided, that, in any 14 calendar day period commencing on
such 90th day after the Closing Date and thereafter, the Holder (or Holders
collectively, of this Debenture shall have been divided into more than one
Debenture) hereof may convert no more than one-fifth of the original principal
amount of the Debenture. The foregoing conversion restrictions shall immediately
terminate, and the Holder shall be permitted to convert all or any part of this
Debenture without regard to the conversion restrictions, upon the occurrence of
any Event of Default, or upon the commencement by any person (other than the
Holder) of any tender offer for shares of Common Stock.
(ii) Accrued But Unpaid Interest. Notwithstanding anything
in this Debenture to the contrary, the Outstanding Amount of this Debenture on
any Conversion Date shall include, without limitation, all accrued but unpaid
interest under this Debenture through such date.
(b) Conversion Price for Converted Shares. The Outstanding Amount
of this Debenture that is converted into shares of Common Stock shall be
convertible into the number of shares of Common Stock determined in accordance
with the following formula:
P + I
--------------------------------------
Conversion Date Market Price
P = principal amount of this Debenture submitted for conversion
I = accrued but unpaid interest on the principal amount
of this Debenture submitted for conversion plus any
unpaid charges or amounts through the Conversion
Date.
The number of shares of Common Stock into which the Outstanding Amount
of this Debenture may be converted pursuant to this paragraph is hereafter
referred to as the "Conversion Rate."
(c) (i) Mechanics of Conversion. In order to convert this Debenture
(in whole or in part) into full shares of Common Stock, the Holder shall
surrender this Debenture, duly endorsed, by either overnight courier or two-day
courier, to the Company, and, in case of any conversion pursuant to Section
4(a)(i), shall give written notice in the form of Exhibit A hereto (the
"Conversion Notice") by facsimile (with the original of such notice forwarded
with the foregoing courier) to the Company that the Holder elects to convert all
or the portion of the Outstanding Amount of this Debenture specified therein,
which notice and election shall be irrevocable by the
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<PAGE> 4
Holder, provided, however, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon conversion
unless this Debenture with evidence of the principal amount hereof to be
converted is delivered to the Company as provided above, or the Holder notifies
the Company that this Debenture has been lost, stolen or destroyed and promptly
executes an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss which may be incurred by it in connection with this
Debenture. The date on which a Conversion Notice is given (the "Conversion
Date") shall be deemed to be the date the Company received by facsimile the
Conversion Notice, as evidenced by a printed confirmation of receipt received by
the Holder. Upon receipt of any Conversion Notice, the Company shall immediately
verify the Holder's calculation of the Conversion Rate.
(ii) Issuance of Certificates. In the case of any Conversion
Notice given by the Holder, the Company shall use its best efforts to cause the
transfer agent for its Common Stock to issue and deliver as promptly as
practicable and in no event later than three (3) business days after delivery to
the Company of the Debenture, or after receipt of the agreement and
indemnification referred to in Section 4(c),to such Holder or to its designee, a
certificate or certificates for the number of shares of Common Stock to which
the Holder shall be entitled, together with a Debenture for the principal amount
not submitted for conversion. The person or persons entitled to receive the
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on the
Conversion Date. If the Company shall not have the requisite number of shares of
Common Stock issuable upon conversion of the Debenture by the Holder, then,
without limiting the Company's obligation to convert the Debenture, such
conversion shall be made for each Holder, pro rata according to the portion of
the total Outstanding Amount of the portion of the Debentures sought to be
converted. At the Holder's option, the request for conversion by the Holder
shall be null and void for any portion of the Debentures for which the Company
does not have shares of Common Stock issuable upon conversion as of the
Conversion Date.
5. Stock Splits: Dividends, Adjustments, Reorganizations
(a) Subdivisions, Combinations, etc. If the Company shall subdivide
its outstanding Common Stock, by split-up, spin-off, or otherwise, or combine
its outstanding Common Stock, then the Conversion Rate in effect as of the date
of such subdivision, split-up, spin-off or combination shall be determined with
reference to the Market Price for shares of Common Stock as reported after such
subdivision split up, spin-off or combination without other adjustment.
(b) Adjustment for Merger, Reorganization; etc. In the event that at
any time or from time to time after the Closing Date, the Common Stock issuable
upon conversion of the Debentures is changed into the same or a different number
of shares of any class or classes of stock, whether in connection with a merger
or consolidation, by recapitalization, reclassification, reorganization or
otherwise (other than a subdivision or combination of shares or stock dividend
or reorganization provided for elsewhere in this Paragraph 5, then and in each
such event the Holder of Debentures shall have the right thereafter to convert
this Debenture into the kind of securities
-4-
<PAGE> 5
receivable upon such merger, recapitalization, reclassification or other change,
all subject to further adjustment as provided herein. In such event, the formula
set forth herein for conversion shall be equitably adjusted to reflect such
change in number of shares or, if shares of a new class of stock are issued, to
reflect the market price of the class or classes of stock (applying the same
factors used in determining the Market Price for Shares of Common Stock) issued
in connection with the above described transaction.
(c) Certificate as to Adjustments. Upon the occurrence of each
adjustment pursuant to this Section 5, the Company at its expense shall furnish
to the Holder a certificate from its independent auditors or an investment
banking firm setting forth (i) in reasonable detail the facts upon which such
adjustment is based, and (ii) the number of shares of Common Stock and the
amount of other property or securities that after giving effect thereto would be
received by the Holder upon conversion of this Debenture.
(d) Disputes. In the event of a reasonable, good faith dispute
between the Holder and the Company with respect to the adjustments required by
Paragraphs 5(b), (c) or (c), then, at the option of either the Holder or the
Company, the dispute shall be submitted to the American Arbitration Association
for resolution according to the then applicable rules thereof. The cost of such
proceeding shall be shared 50% by the Holder and 50% by the Company, except that
each party shall bear its own legal and other expenses.
6. Fractional Shares. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder. The
number of shares of Common Stock that are issuable upon any conversion shall be
rounded up or down to the nearest whole share.
7. Reservation of Stock Issuable Upon Conversion
The Holder has been informed that (i) as of February __, 1998, the
Company had issued all of its authorized shares of Common Stock and had no
Common Stock available for issuance upon conversion of this Debenture and (ii)
the Company has called a special meeting of its stockholders to be held on March
4, 1998, to approve a reverse split of its outstanding shares of Common Stock
which reverse split would result in the Company having approximately 7,500,000
shares of Common Stock outstanding (immediately after the reverse split) and
75,000,000 authorized shares of Common Stock (the "Reverse Split"). In the event
that the Reverse Split is not effected on or before March 9, 1998, the Holder
may require the Company to repurchase his Debenture for the outstanding
principal amount plus interest accrued thereon by presenting his Debenture for
payment on or before March 12, 1998, and the Company shall pay such amount
within three business days of presentation. Subject to consummation of the
Reverse Split, the Company shall use its best efforts to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue shares of
its Common Stock upon conversion of the Debenture; provided, however, that the
aggregate number of shares so reserved shall initially be 850,000 shares. The
number of shares so reserved may be reduced by the number of shares actually
delivered pursuant to partial conversion of the Debenture and the number of
shares so
-5-
<PAGE> 6
reserved shall be increased or decreased proportionally to reflect stock splits,
stock dividends and other distributions. In the event that the number of shares
so reserved shall be insufficient for issuance upon conversion of the Debenture
(without giving effect to any applicable conversion restrictions), or if the
Holder would at any time upon conversion thereof be entitled to the issuance of
shares of Common Stock in excess of the limitation in Paragraph 4(d), then upon
receipt by the Company of notice from the Holder, the Company shall use its best
efforts and all due diligence to increase the number of shares so reserved
(without giving effect to any applicable conversion restrictions) to cure such
deficiency and, if necessary, to obtain the approval by its shareholders
therefor, including the authorization of such additional number of shares of
Common Stock as may be required to issue such shares in excess of the number so
reserved (either in the aggregate or as to the Debenture) or in excess of such
limitation, as the case may be.
8. No Impairment. The Company shall not intentionally take any action
which would impair the contractual rights and privileges of the Debenture set
forth herein or of the Holder thereof.
9. Limitations on Holder's Obligation to Convert. Notwithstanding
anything to the contrary contained herein, no Holder shall be required to
convert any part of this Debenture in excess of the portion then convertible
into that number of shares of Common Stock specified in the Holder's
representation to the Company that, after giving effect to the shares of the
Company's Common Stock to be issued pursuant to such Conversion Notice, the
total number of shares of Common Stock deemed beneficially owned by the Holder,
together with all shares of the Company's Common Stock deemed beneficially owned
by the Holder's "affiliates" as defined in Rule 144 of the Act, would exceed
4.9% of the total issued and outstanding shares of the Company's Common Stock.
10. Obligations Absolute. No provision of this Debenture, other than
conversion as provided herein, shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the manner,
herein prescribed.
11. Waivers of Demand, Etc. The Company hereby expressly waives demand
and presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of intent to accelerate, prior notice of bringing of
suit and diligence in taking any action to collect amounts called for hereunder
and will be directly and primarily liable for the payments of all sums owing and
to be owing hereon, regardless of and without any notice (except as required by
law), diligence, act or omission as or with respect to the collection of any
amount called for hereunder.
12. Replacement Debenture. In the event that the Holder notifies the
Company that this Debenture has been lost, stolen or destroyed, a replacement
Debenture identical in all respects to the original Debenture (except for
registration number and Outstanding Amount, if different than that shown on the
original Debenture) shall be issued to the Holder, provided that the Holder
executes and delivers to the Company an agreement reasonably satisfactory to the
Company to indemnity the Company from any loss incurred by it in connection with
the Debenture and provided that the Company is provided a form of Debenture for
such replacement purposes.
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<PAGE> 7
13. Payment of Expenses. The Company agrees to pay all debts and
expenses, including reasonable attorneys' fees and expenses, which may be
incurred by the Holder in enforcing the provisions of this Debenture and/or
collecting any amount due under this Debenture, the Subscription Agreement or
the Registration Rights Agreement.
14. Defaults. If one or more of the following events (hereinafter
called "Events of Default") shall occur:
(a) The Company shall fail to perform or observe any covenant or
agreement in the Registration Rights Agreement or any other covenant, term
provision, condition, agreement or obligation of the Company under this
Debenture, and such failure shall continue uncured for a period of ten (10)
business days after notice from the Holder of such failure, or the Company shall
fail to make any payments upon redemption of this Debenture or fail to issue
shares of Common Stock upon conversion of this Debenture; or
(b) The Company shall (i) make a general assignment for the benefit
of creditors or commence proceedings for its dissolution; or (ii) apply for or
consent to the appointment of a trustee, liquidator or receiver for it or for a
substantial part of its property or business; or
(c) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or
(d) Any governmental agency or any court of competent jurisdiction
shall assume custody or control of the whole or any substantial portion of the
properties or assets of the Company and shall not be dismissed within sixty (60)
days thereafter, or
(e) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings, or relief under any bankruptcy law or any law
for the relief of debt shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution, or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit to any material
allegations of, or default in answering a petition filed in, any such
proceeding;
then, or at any time thereafter prior to the date on which all continuing Events
of Default have been cured, and in each and every such case, unless such Event
of Default shall have been waived in writing by the Holder (which waiver shall
not be deemed to be a waiver of any subsequent default) at the option of the
Holder and in the Holder's sole discretion, the Holder may, by notice to the
Company declare this Debenture immediately due and payable, and the Holder may
immediately, and without expiration of any period of grace, enforce any and all
of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law. In such event, the Debenture shall be redeemed at a
redemption price per Debenture equal to the Outstanding Amount.
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<PAGE> 8
15. Savings Clause. In case any provision of this Debenture is held
by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
16. Entire Agreement. This Debenture and the agreements referred to in
this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof. Neither
this Debenture nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and the
Holder.
17. Assignment, Etc. The Holder may, transfer or assign this Debenture
or any interest herein (but in no event in an amount less than $100,000 in
Outstanding Amount or, if less than $100,000, the total Outstanding Amount
hereof) and may mortgage, encumber or transfer any of its rights or interest in
and to this Debenture or any part hereof, and each assignee, transferee and
mortgagee (which may include any affiliate of the Holder) shall have the right
to so transfer or assign its interest; provided, however, that before the
Registration Statement contemplated by the Registration Rights Agreement becomes
effective, Holder will furnish the Company with an opinion of counsel to the
effect that such assignment, transfer, mortgage or other encumbrance is exempt
from the registration requirements under the Securities Act and without limiting
the generality of the foregoing will not violate, and will not cause the Company
to be in violation of Rule 152 promulgated under the Securities Act. Each such
assignee, transferee and mortgagee shall have all of the rights and obligations
of the Holder under this Debenture. The Company agrees that, subject to
compliance with the Subscription Agreement, after receipt by the Company of
written notice of assignment from the Holder or from the Holders' assignee, all
principal, interest, and other amounts which are then due and thereafter become
due under this Debenture shall be paid to such assignee at the place of payment
designated in such notice. This Debenture shall be binding upon the Company and
its successors and shall inure to the benefit of the Holder and its successors
and assigns.
18. No Waiver. No failure on the part of the Holder to exercise, and no
delay in exercising, any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
19. Miscellaneous. Unless otherwise provided herein, any notice or
other communication to a party hereunder shall be deemed to have been duly given
if personally delivered or sent by registered or certified mail, return receipt
requested, postage prepaid with a copy in each case sent on the same day to the
party by facsimile, Federal Express or other such expedited means to said party
at its address set forth herein or such other address as either may designate
for itself in such notice to the other and communications shall be deemed to
have been received when delivered
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<PAGE> 9
personally or, if sent by mail or Federal Express, when actually received by the
party to whom it is addressed. Copies of all notices to the Company shall be
sent to:
DynaGen, Inc.
840 Memorial Drive
Cambridge, MA 02139
Attention: President
Telephone: (617) 491-2527
Telecopy: (617) 354-3902
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: David A. Broadwin, Esq.
Telephone: (617) 832-1259
Telecopy: (617) 832-7000
If to the Investor, to:
Sovereign Partners
Executive Pavilion
90 Grove Street
Richfield, CT 06877
Whenever the sense of this Debenture requires, words in the singular shall be
deemed to include the plural and words in the plural shall be deemed to include
the singular. Paragraph headings are for convenience only and shall not affect
the meaning of this document.
20. Choice of Law and Venue: Waiver of Jury Trial. THIS DEBENTURE SHALL
BE CONSTRUED UNDER THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW THEREOF. The parties hereby (i)
irrevocably submit to the exclusive jurisdiction of the United States District
Court for the Southern District of New York for the purposes of any suit, action
or proceeding arising out of or relating to this Debenture and (ii) waive, and
agree not to assert in any such suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of such court, that the suit, action
or proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. The Company consents to process being served
in any such suit, action or proceeding by mailing a copy thereof to the Company
at the address in effect for notices to it under this Debenture and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing in this paragraph shall affect or limit any right to serve
process in any other manner permitted by law.
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<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated as of: February 26, 1998
DYNAGEN, INC.
By: /s/ Jay Wadekar
Name: Dhananjay G. Wadekar
Title:
The Holder agrees to be bound by all the provisions of this Debenture
applicable to it.
SOVEREIGN PARTNERS
By: /s/ Stephen Hicks
Name: Stephen Hicks
Title:
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<PAGE> 1
EXHIBIT 4c
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
February 26, 1998 by and among DynaGen, Inc., a Delaware corporation, with
headquarters located at 840 Memorial Drive, Cambridge, Massachusetts 02139 (the
"Company"), and Sovereign Partners, a Delaware limited partnership (the
"Investor").
WHEREAS:
A. In connection with the 7% Convertible Debenture Due February 26,
1999 of even date herewith by the Company and the Investor (the "Debenture"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue to the Investor shares $0.01 par value per share of the
Company's common stock, $0.01 par value per share (the "Common Stock") issuable
upon conversion of the Debenture upon the terms and subject to the conditions
set forth therein; and
B. To induce the Investor to execute and deliver the Debenture, the
Company has agreed to provide certain registration rights under the Securities
Act of 1933, as amended, and the rules and regulations thereunder, or any
similar successor statute (collectively, the "1933 Act");
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investor
hereby agree as follows:
1. DEFINITIONS
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Investor and any transferees or
assignees who agree to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "Register, "Registered" and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iii) "Potential Material Event" means any of the following: (a)
the possession by the Company of material information not ripe for disclosure in
a registration statement, which shall be evidenced by determinations in good
faith by the Board of Directors of the Company that disclosure of such
information in a Registration Statement would be detrimental to the business and
affairs of the Company; or (b) any material engagement or activity by the
Company which would, in the good faith determination of the Board of Directors
of the Company, be adversely affected by disclosure in a Registration Statement
at such time, which determination shall be accompanied by a
<PAGE> 2
good faith determination by the Board of Directors of the Company that the
registration statement would be materially misleading absent the inclusion of
such information.
(iv) "Registrable Securities" means the Common Stock
issued to the Investor upon conversion in whole or in part of the Debenture.
Registrable Securities shall not include any shares of Common Stock which are
available for sale and can be sold (whether or not so sold) pursuant to Rule
144A or Rule 144 of the Act, or any similar rule promulgated by the SEC
permitting the resale of restricted securities without the necessity of a
registration statement under the Act.
(v) "Registration Statement"means a registration
statement of the Company under the 1933 Act.
2. REGISTRATION
(a) Mandatory Registration. The Company shall, as soon as
practicable after the date hereof but in no event more than 30 days following
the date hereof, file with the SEC a Registration Statement on Form S-3 (or, if
Form S-3 is not then available, on such form of Registration Statement as is
then available to effect a registration of the Registrable Securities, subject
to the consent of the Investor, which consent will not be unreasonably withheld,
conditioned or delayed) covering the resale of the Registrable Securities. The
Registration Statement, to the extent then allowable under the 1933 Act and the
Rules promulgated thereunder , shall state that in accordance with Rule 416 and
Rule 457 under the 1933 Act, it also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon conversion of the
Debenture to prevent dilution resulting from fluctuations in the market price of
the Common Stock into which the Debenture is convertible or from stock splits,
stock dividends or similar transactions. The Company shall use its best efforts
to cause such registration to become and remain effective (including the taking
of such steps as are necessary to obtain the removal of any stop orders);
provided, that the Investor shall furnish the Company, within five (5) business
days of the Company's written request, with such appropriate information in
connection therewith (whether requested prior to or after the filing of the
Registration Statement with the SEC) as the Company shall reasonably request in
writing. The Registration Statement (and each amendment or supplement thereto,
and each request for acceleration of effectiveness thereof) shall be provided to
(and subject to the approval of) the Investor and its counsel prior to its
filing or other submission. The number of shares of Common Stock initially
included in such Registration Statement shall be no less than one hundred
percent (100%) of the shares of Common Stock issuable upon the conversion of the
Debenture as of the date such Registration Statement is initially filed. The
Company further undertakes to use its best efforts to ensure that a Registration
Statement is, or Registration Statements are, effective at all times during the
Registration Period (as defined below) with respect to all Registrable
Securities and the resale thereof.
(b) Eligibility for Form S-3. The Company represents and
warrants that, as of the date hereof, it meets the requirements for the use of
Form S-3 for registration of the sale by the Investor of the Registrable
Securities, and the Company shall file all reports required to be filed by the
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<PAGE> 3
Company with the SEC in a timely manner, and take any and all such other actions
within its control as may be reasonably necessary or appropriate, so as to
maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
(a) The Company shall, as soon as practicable after the Closing
Date but in no event more than 30 days following the Closing Date, prepare and
file promptly with the SEC a Registration Statement and thereafter use its Best
Efforts (as hereinafter defined) to cause such Registration Statement relating
to the Registrable Securities to promptly become effective, but in no event to
become effective more than 90 days following the Closing Date, and to keep the
Registration Statement effective pursuant to Rule 415 at all times until such
date as is the earlier of (i) the date on which all of the Registrable
Securities have been sold and no shares of Preferred Stock and no portion of the
Debenture remains outstanding or (ii) the date on which all of the Registrable
Securities (in the opinion of counsel to the Investor) may be immediately
publicly sold without registration and (iii) two years from the Closing Date
(the "Registration Period"), which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein and all
documents incorporated by reference therein) shall not contain any untrue
statement of a material fact, or omit to state a material fact required to be
stated therein, or necessary to make the statements therein not misleading. The
Company shall furnish to the Investor copies of reasonably complete drafts of
all such documents proposed to be filed (including exhibits, if any), and the
Investor shall have the opportunity to object, within three (3) business days,
to any information pertaining solely to the Investor that is contained therein
and the Company will make the corrections reasonably requested by the Investor
with respect to such information prior to filing any such Registration Statement
or amendment. Any period of review and revision resulting from such review shall
be added to the time in which the Registration Statement is to be filed and no
penalty shall be assessed with respect to such period. If the Company fails to
cause such Registration Statement to become effective within 90 days following
the Closing Date, other than (i) due to the material failure, whether by act or
omission, by the Investor to fulfill its obligations hereunder or (ii) during
the time after a Potential Material Event shall have occurred and before it has
been disclosed or no longer constitutes a Potential Material Event, then the
Conversion Date Market Price in the Debenture, as therein defined, shall be
reduced 2% for each month that the Company's failure continues, prorated for
periods of less than one month, up to a maximum reduction of 10%. As used in
Section 2(a), 3(a), (b), (d), (f), (i) and (m) hereof, "Best Efforts" shall
include the taking of any and all actions necessary or appropriate with respect
thereto, including timely response to all comments and correspondence received
(including from the SEC), the filing or providing of any further drafts and
other documents as may be required, and the like.
(b) The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used
3
<PAGE> 4
in connection with the Registration Statement as may be necessary to keep the
Registration Statement effective at all times during the Registration Period.
Without limiting any of the Company's obligations under this Agreement, in the
event the number of shares available under a Registration Statement filed
pursuant to this Agreement is insufficient to cover all of the Registrable
Securities issued or issuable upon conversion of the Debenture, the Company
shall amend the Registration Statement, or file a new Registration Statement (on
the short form available therefore, if applicable), or both, so as to cover all
of the Registrable Securities, in each case, as soon as practicable, but in any
event within twenty (20) days after the necessity therefor arises (based on the
market price of the Common Stock and other relevant factors on which the Company
reasonably elects to rely). The Company shall use its Best Efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
possible following the filing thereof.
(c) The Company shall furnish to the Investor (i) promptly
after the same is prepared and publicly distributed, filed with the SEC or
received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC, and each material item of correspondence from the
SEC or the staff of the SEC, in each case relating to such Registration
Statement (other than any portion thereof that contains information for which
the Company has sought confidential treatment), and (ii) such number of copies
of a prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as the Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by the Investor.
(d) The Company shall use its Best Efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as the Investor shall reasonably request, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary, appropriate or available to maintain
such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection therewith or as a
condition thereto to (a) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(d), (b)
subject itself to general taxation in any such jurisdiction, (c) file a general
consent to service of process in any such jurisdiction, (d) provide any
undertakings that cause the Company undue expense or burden, or (e) make any
change in its charter or bylaws, which in each case the Board of Directors of
the Company determines to be contrary to the best interests of the Company and
its stockholders. The Company shall promptly notify the Investor of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
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<PAGE> 5
(e) Notwithstanding the foregoing, if at any time or from time
to time after the date of effectiveness of the Registration Statement, the
Company notifies the Investor in writing of the existence of a Potential
Material Event, the Investor shall not offer or sell any Registrable Shares, or
engage in any other transaction involving or relating to the Registrable Shares,
from the time of the giving of notice with respect to a Potential Material Event
until the earlier of (i) twenty (20) days from the receipt of notice of such
Potential Material Event, or (ii) the Investor receives written notice from the
Company that such Potential Material Event either has been disclosed to the
public or no longer constitutes a Potential Material Event; provided, however,
that the Company shall use its best efforts to minimize any such suspension and
under all circumstances the Company may not so suspend the right to holders of
Registrable Shares for more than two periods of twenty (20) days each in the
aggregate during any 12-month period during the period the Registration
Statement is required to be in effect; and provided, further, that there shall
be an interval of no less than 45 days between such two twenty (20) day periods.
(f) The Company shall use its Best Efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify the
Investor of the issuance of such order and the resolution thereof.
(g) For a period of five (5) business days prior to filing with
the SEC, the Company shall permit counsel designated by the Investor to review
the Registration Statement and all amendments and supplements thereto. Any
period of review and revision resulting from any such review that extends beyond
five (5) business days shall be added to the time in which registration is
required to be filed and effective, as appropriate, and no penalty shall be
assessed with respect to such period.
(h) The Company shall make available for inspection by (i) the
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investor, and (iv) one firm of attorneys
retained by such underwriter (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records") as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that the Investor shall
cause each Inspector to and each Inspector shall hold in confidence and shall
not make any disclosure of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
determined to be necessary by the Company to avoid or correct a misstatement or
omission in any Registration Statement, (b) the release of such Records is
ordered pursuant to a subpoena or other order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement. The Company shall not be required to disclose any
confidential information in such Records to any Inspector until and
5
<PAGE> 6
unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, containing terms substantially similar to those contained in this
Section 3(h). The Investor agrees that it shall, upon learning that disclosure
of such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
(i) The Company shall hold in confidence and not make any
disclosure of information concerning the Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, or other applicable law, (ii) the disclosure of such
information is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company agrees that it shall, upon learning that disclosure
of such information concerning the Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to such Investor prior to making such disclosure, and allow the Investor,
at its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, such information.
(j) The Company shall use its Best Efforts to secure the
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq SmallCap Market, if the listing of such
Registrable Securities is then permitted under the rules and regulations of such
market.
(k) The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than
sixty (60) days from the date hereof.
(l) The Company shall promptly facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legends)
representing Registrable Securities to be sold pursuant to the Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the managing underwriter or underwriters, if any, or the
Investor may reasonably request and registered in such names as the managing
underwriter or underwriters, if any, or the Investor may request.
(m) The Company shall use its Best Efforts to cause all
Registrable Securities covered by such Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to enable each holder thereof to consummate disposition of Registrable
Securities.
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<PAGE> 7
4. OBLIGATIONS OF THE INVESTOR
In connection with the registration of the Registrable Securities, the
Investor shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of the particular Investor that such Investor shall
furnish to the Company, within five (5) business days of the Company's written
request, such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities held by
it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute within five (5) business days of
receipt by the Investor such documents in connection with such registration as
the Company may reasonably request.
(b) The Investor, by the Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder.
(c) The Investor agrees that, upon receipt of any notice from
the Company of the happening of a Potential Material Event as set forth in
Section 3(e), the Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities in accordance with Section 3(e).
(d) Without limiting the Investor's rights under Section 2(a),
the Investor may not participate in any underwritten distribution hereunder
unless such Investor (i) agrees to sell the Registrable Securities on the basis
provided in any underwriting arrangements in usual and customary form entered
into by the Company, (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements, and (iii) agrees to
pay its pro rata share of all underwriting discounts and commissions and any
expenses in excess of those payable by the Company pursuant to Section 5 below.
(e) The Investor understands that the 1933 Act may require
delivery of a prospectus relating thereto in connection with any sale thereof
pursuant to such Registration Statement and the Investor shall use its
reasonable best efforts to comply with the applicable prospectus delivery
requirements of the 1933 Act in connection with any such sale.
(f) The Investor agrees to notify the Company promptly, but in
any event within seventy-two (72) hours after the date on which all Registrable
Securities owned by such Investor have been sold by such Investor, so that the
Company may comply with its obligation to terminate the Registration Statement
in accordance with Item 512 of Regulation S-K or Regulation S-B, as the case may
be.
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<PAGE> 8
5. EXPENSES OF REGISTRATION
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including all registration, listing
and qualifications fees, printers and accounting fees and the fees and
disbursements of counsel for the Company, shall be borne by the Company. All
fees and disbursements of counsel to the holders of Registrable Securities, any
expenses incurred as a result of any investigation pursuant to Section 3(h), any
underwriting discounts and commissions and all other expenses of such holders
not contained in the previous sentence shall be borne by the holders of
Registrable Securities.
6. INDEMNIFICATION
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) the Investor and (ii) the directors, officers,
partners, employees, agents and each person who controls the Investor within the
meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), if any, (each, an "Indemnified Person"), against any joint or
several losses, claims, damages, liabilities or expenses (collectively, together
with actions, proceedings or inquiries by any regulatory or self-regulatory
organization, whether commenced or threatened, in respect thereof, "Claims") to
which any of them may become subject under the 1933 Act, the 1934 Act or
otherwise, insofar as any such Claim arises out of or is based upon: (i) any
untrue statement or alleged untrue statement of a material fact in a
Registration Statement or the omission or alleged omission to state therein a
material fact required to be stated or necessary to make the statements therein
not misleading or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading (the matters in the foregoing clauses (i) and (ii) being,
collectively, "Violations"). Subject to the restrictions set forth in Section
6(c) with respect to the number of legal counsel, the Company shall reimburse
the Investor and each controlling person, promptly as such expenses are incurred
and are due and payable, for any reasonable legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not apply to
a Claim arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement, preliminary prospectus or final prospectus, or any
amendment thereof or supplement thereto; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent
8
<PAGE> 9
shall not be unreasonably withheld; and (iii) with respect to any preliminary
prospectus, shall not inure to the benefit of any Indemnified Person if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected on a timely basis in the prospectus, as then amended or
supplemented, if such corrected prospectus was timely made available by the
Company pursuant to Section 3(c) hereof. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investor pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, any Investor that does not fulfill its obligations under
Sections 2(a), 3(a) or 4(a) hereof within the period of time specified in such
Sections shall not be an Indemnified Person and shall not be entitled to
indemnification pursuant to this Section 6.
(b) In connection with any Registration Statement in which the
Investor is participating, the Investor agrees to indemnify, hold harmless and
defend, to the same extent and in the same manner set forth in Section 6(a), the
Company, each of its directors, each of its officers who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
the 1933 Act or the 1934 Act, and any other stockholder selling securities
pursuant to the Registration Statement or any of its directors or officers or
any person who controls such stockholder within the meaning of the 1933 Act or
the 1934 Act (collectively, an "Indemnified Party"), against any Claim to which
any of them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim arises out of or is based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by the
Investor expressly for use in connection with such Registration Statement,
preliminary prospectus or final prospectus, or any amendment or supplement
thereto; and subject to Section 6(c) the Investor will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds to the
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investor
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
(c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the
9
<PAGE> 10
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The indemnifying party shall pay for only one separate legal counsel
for the Indemnified Persons or the Indemnified Parties, as applicable, and such
legal counsel shall be selected by the Investor holding a majority-in-interest
of the Registrable Securities included in the Registration Statement to which
the Claim relates, if the Investor is entitled to indemnification hereunder, or
the Company, if the Company is entitled to indemnification hereunder, as
applicable. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
indemnifying party is actually prejudiced in its ability to defend such action.
The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.
7. CONTRIBUTION
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation, and (iii) contribution (together with any indemnification or
other obligations under this Agreement) by any seller of Registrable Securities
shall be limited in amount to the amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT
With a view to making available to the Investor the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the Investor to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees to:
10
<PAGE> 11
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the filing of such reports and other documents is required for the sale of the
Registrable Securities pursuant to Rule 144; and
(c) furnish to the Investor so long as the Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investor to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS
The rights of the Investor hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by the Investor to any transferee of at least 30% of
the Debenture or Registrable Securities held by the Investor if (i) the Investor
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment, (ii) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned, (iii)
following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Debenture, and (vi) such
transferee shall be an "accredited investor" as that term defined in Rule 501 of
Regulation D promulgated under the 1933 Act.
10. AMENDMENT
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by means of a written executed by the
parties hereto.
11. MISCELLANEOUS
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
11
<PAGE> 12
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission or
other means) or sent by facsimile or overnight courier,
If to the Company, to:
DynaGen, Inc.
840 Memorial Drive
Cambridge, MA 02139
Attention: President
Telephone: (617) 491-2527
Telecopy: (617) 354-3902
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: David A. Broadwin, Esq.
Telephone: (617) 832-1259
Telecopy: (617) 832-7000
If to the Investor, to:
Sovereign Partners
Executive Pavilion
90 Grove Street
Richfield, CT 06877
or at such other address as each such party furnishes by notice given in
accordance with this Section 11(b), and shall be effective upon receipt when
personally delivered, on the date of transmission when sent by facsimile and one
day following the date of deposit thereof with delivery charges prepaid when
sent by a national overnight courier.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed
in accordance with the laws of the State of Delaware applicable to agreements
made and to be performed entirely within
12
<PAGE> 13
such State. In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof. Each of
the parties consents to the jurisdiction of the United States District Court for
the Southern District of New York in connection with any dispute arising under
this Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions.
(e) This Agreement and the Debenture (including any schedules
and exhibits thereto) constitute the entire agreement among the parties hereto
with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement and the Debenture supersede
all prior agreements and understandings among the parties hereto with respect to
the subject matter hereof and thereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
(i) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
[REMAINDER OF PAGE IS INTENTIONALLY LEFT BLANK.]
13
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument as of the date first set forth above.
DYNAGEN, INC.
By: /s/ Dhananjay G. Wadekar
Dhananjay G. Wadekar
Executive Vice President
SOVEREIGN PARTNERS
By: /s/ Stephen Hicks
Name:
Title:
Address:
14
<PAGE> 1
Exhibit 4d
AGREEMENT
THIS AGREEMENT, dated March 19, 1998 (this "AGREEMENT"), by and between
DynaGen, Inc. a Delaware corporation ("DYNAGEN"), and The Endeavour Capital
Fund, S.A., a British Virgin Islands corporation ("ENDEAVOUR").
WITNESSETH THAT:
WHEREAS, DynaGen and Endeavour are parties to that certain Stock Purchase
Agreement,dated as of August 20, 1997 (the "STOCK PURCHASE AGREEMENT");
providing, among other things, for the sale and purchase of the Series D
Convertible Preferred Stock, $.01 par value per share (the "SERIES D PREFERRED
STOCK"), of DynaGen; and
WHEREAS, DynaGen wishes to sell and Endeavour wishes to purchase a tranche
of the Series D Preferred Stock;
NOW, THEREFORE, in consideration of this Agreement and intending to be
legally bound hereby, the parties hereto agree as follows;
1. SALE AND PURCHASE. DynaGen shall sell, and Endeavour shall purchase,
the first tranche of the Series D Preferred Stock in the principal amount of
$500,000 (the "FIRST TRANCHE") required to be purchased and sold in accordance
with the Stock Purchase Agreement and this Agreement.
2. DELIVERY OF SHARES AND PAYMENT. Endeavour shall pay the purchase price
for the First Tranche by delivering immediately available good funds in United
States Dollars to Samuel Krieger, Esq. (the "ESCROW AGENT") who shall promptly
notify DynaGen of the receipt of such funds. Such funds shall be delivered to
the Escrow Agent promptly, but in any event within two business days after the
date hereof. Promptly following such notice, but in any event within two
business days thereafter, DynaGen shall deliver a certificate (the
"CERTIFICATE") for the shares of Series D Preferred Stock constituting the
First Tranche duly executed on behalf of DynaGen to the Escrow Agent. Promptly,
but in any event within one business day of receipt of the Certificate, the
Escrow Agent shall deliver payment for the First Tranche to DynaGen by wire
transfer of immediately available good funds in United States. Time is of the
essence with respect to the provisions of this SECTION 2.
3. SETTLEMENT OF PENALTIES. Concurrently with the delivery of the
Certificate, DynaGen shall execute and deliver to the Escrow Agent a debenture
in the original principal amount of $328,500 and otherwise in the form of
EXHIBIT A hereto (the "DEBENTURE"). The Debenture is being delivered to
Endeavour in consideration of the waiver of (a) all amounts owed by DynaGen
under Section 2. (b)(i) of the Registration Rights Agreement, dated as of
August 20, 1997, by and between DynaGen and Endeavour (the "REGISTRATION RIGHTS
AGREEMENT") and (b) all amounts incurred by DynaGen up to the date hereof under
Section 2. (b)(ii) of the Registration Rights Agreement, which for the purposes
hereof is agreed to be $93,750 (the "REGISTRATION PENALTY"). Upon the delivery
of the Certificate, the first Computation Date," as defined in said Section
2(b), shall be extended to a date
<PAGE> 2
sixty days from the date hereof, provided, that DynaGen shall pay to Endeavour
$18,750 per month (prorated for periods of less than one month) from the date
hereof until the earlier of (i) the first Computation Date, as extended hereby,
or (ii) the date that a registration statement contemplated by the Registration
Rights Agreement is declared effective by the Securities and Exchange
Commission. If such registration statement has not been declared effective on
such first Computation Date as extended hereby, then DynaGen shall make an
additional payment of $7,500 per week to Endeavour (in addition to the monthly
payment set forth above) until the earlier of (X) the time the aggregate amount
of such additional payment equals the Registration Penalty or (Y) such
registration statement is declared effective by the Securities and Exchange
Commission.
4. Waivers and Acknowledgments. Endeavour hereby waives the conditions set
forth below to its obligation to purchase the First Tranche. This waiver is
solely for the purposes of the sale of the First Tranche and is not a
continuing waiver nor is it an agreement to waive the same requirements in the
future. Endeavour hereby waives the requirements of the Stock Purchase
Agreement set forth in Section 4i.(a) (requiring a five day prior written
notice), 4i.(b) (limiting each tranche to $400,000), and 4i.(c)(i), (iii) and
(iv) (requiring effectiveness of the Registration Statement and certain other
matters). Endeavour acknowledges that it has been informed that DynaGen has
received a notice, dated February 26, 1998, from the NASDAQ stating that
DynaGen does not meet the listing requirements of the NASDAQ and is subject to
delisting.
5. Representations and Warranties. Except as set forth on Exhibit A
hereto, the representations and warranties of DynaGen set forth in Section 3 of
the Stock Purchase Agreement are true and correct in all material respects.
6. Recent Transactions. Exhibit B hereto sets forth a true, correct and
complete list of all material transactions entered into by DynaGen since August
20, 1997.
7. Costs and Expenses. DynaGen will pay up $13,000.00 of the legal fees of
Endeavour incurred since August 20, 1997.
8. Miscellaneous. Section 10 of the Stock Purchase Agreement shall also
govern this Agreement.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
DYNAGEN, INC.
By: /s/ Dhananjay Wadekar
----------------------------
Name: Dhananjay Wadekar
Title: Chairman of the Board
THE ENDEAVOUR CAPITAL FUND S.A.
By:
----------------------------
Name: Shmulie Margulies
Title: Director
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
DYNAGEN, INC.
By:
------------------------------
Name: Dhananjay Wadekar
Title: Chairman of the Board
THE ENDEAVOUR CAPITAL FUND S.A.
By: /s/ Shmulie Margulies
------------------------------
Name: Shmulie Margulies
Title: Director
<PAGE> 1
Exhibit 4e
EXECUTION COPY
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.
8% CONVERTIBLE DEBENTURE DUE MARCH 19, 2003
THIS 8% CONVERTIBLE DEBENTURE ("Debenture") is issued by DynaGen,
Inc.,a corporation duly organized and existing under the laws of the State of
Delaware and having its principal address at 840 Memorial Drive, Cambridge,
Massachusetts 02139 (the "Company").
FOR VALUE RECEIVED, and in settlement of all claims of the Holder, as
hereinafter defined, to penalties for the Company's failure timely to file a
registration statement in accordance with Section 5(c) of that certain Stock
Purchase Agreement dated as of August 27, 1997 by and between the Company and
the Holder, the Company promises to pay to The Endeavor Capital Fund S.A. having
an address at 14/14 Divrei Chaim Street, Jerusalem 94479, Israel, the holder
hereof, or its order (the "Holder"), an amount equal to the principal sum of
Three Hundred Twenty-Eight Thousand Five Hundred United States Dollars (U.S.
$328,500) on March 19, 2003 (the "Maturity Date") plus interest accrued on the
principal sum outstanding under this Debenture from time to time, at the rate of
8% per annum due and payable in arrears on the Maturity Date. Interest shall be
calculated based on a 360 day year of twelve equal months. Accrual of interest
shall commence on the date hereof and shall continue until payment in full of
the principal sum has been made. This Debenture is payable on the Maturity Date
solely in shares of common stock, $0.01 par value per share, of the Company
("Common Stock"), valued at the Market Price for Shares of Common Stock, as
hereinafter defined. This Debenture is subordinate to all secured indebtedness
of the Company. This Debenture may be redeemed by the Company upon thirty days'
prior written notice, to the holder for the then outstanding principal amount
together with interest accrued thereon; redemption shall be paid in cash.
This Debenture is subject to the following additional provisions:
1. Exchange. The Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different denominations, of not less than
$100,000 (or the total principal amount, if less than $100,000) each as
requested by the Holder surrendering the same. No service charge will be made
for such exchange.
2. Transfers. This Debenture may be transferred or exchanged in the
United States only in compliance with the Securities Act of 1933, as amended
(the "Securities Act"), and applicable
<PAGE> 2
state securities laws and in accordance with other applicable provisions hereof.
Prior to due presentment for transfer of this Debenture, the Company may treat
the person in whose name this Debenture is duly registered as the owner hereof
for the purpose of receiving payment as herein provided and all other purposes,
whether or not this Debenture is then overdue, and the Company shall not be
affected by notice to the contrary.
3. Definitions. For purposes hereof, the following terms shall have
the following meanings:
"Closing Date" shall mean the date of original issuance of
this Debenture.
"Common Stock" shall mean the Common Stock, par value $.01 per
share, of the Company.
"Conversion Date" shall have the meaning set forth in Section
4(c)(i).
"Conversion Date Market Price" shall mean, at any Conversion
Date the average Market Price for Shares of Common Stock for the five trading
days immediately preceding the Conversion Date.
"Conversion Notice" shall have the meaning set forth in
Section 4(c).
"Conversion Rate" shall have the meaning set forth in Section
1(k).
"Event of Default" shall have the meaning set forth in Section
14.
"Market Price for Shares of Common Stock" shall mean the price
of one share of Common Stock determined as follows:
(i) If the Common Stock is listed on the Nasdaq
SmallCap Market, the closing bid price on the date of valuation, as reported by
Bloomberg Financial Markets; or
(ii) If the Common Stock is listed on any other
national securities exchange, the closing bid price on the date of valuation, as
reported by Bloomberg Financial Markets; or
(iii) If neither (i) nor (ii) apply, but the Common
Stock is quoted in the over-the-counter market on the pink sheets or bulletin
board, the lowest sales price on the date of valuation, as reported by Bloomberg
Financial Markets; or
(iv) If none of clause (i), (ii) or (iii) above
applies, the market value as determined by an independent nationally recognized
investment banking firm or financial advisor retained in good faith by the
Company for such purpose, taking into consideration, among other factors, the
earnings history, book value and prospects for the Company, and the prices at
which
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<PAGE> 3
shares of Common Stock recently have been traded. Such determination shall
be conclusive and binding on all persons.
"Outstanding Amount" shall mean the principal sum outstanding
under this Debenture and all accrued but unpaid interest thereon.
4. Conversion. This Debenture is subject to conversion as follows:
(a) (i) Holder's Right to Convert. This Debenture shall be
convertible at any time and from time to time after the Closing Date and until
the Maturity Date, at the option of the Holder hereof into fully paid, validly
issued and nonassessable shares of Common Stock.
(ii) Accrued But Unpaid Interest. Notwithstanding
anything in this Debenture to the contrary, the Outstanding Amount of this
Debenture on any Conversion Date shall include, without limitation, all accrued
but unpaid interest under this Debenture through such date.
(b) Conversion Price for Converted Shares. The Outstanding
Amount of this Debenture that is converted into shares of Common Stock shall be
convertible into the number of shares of Common Stock determined in accordance
with the following formula:
P + I
--------------------------------------
Conversion Date Market Price
P = principal amount of this Debenture submitted for conversion
I = accrued but unpaid interest on the principal amount
of this Debenture submitted for conversion plus any
unpaid charges or amounts through the Conversion
Date.
The number of shares of Common Stock into which the Outstanding Amount
of this Debenture may be converted pursuant to this Section 4(b) is hereafter
referred to as the "Conversion Rate."
(c) (i) Mechanics of Conversion. In order to convert this
Debenture (in whole or in part) into full shares of Common Stock, the Holder
shall surrender this Debenture, duly endorsed, by either overnight courier or
two-day courier, to the Company, and, in case of any conversion pursuant to
Section 4(a)(i), shall give written notice in the form of Exhibit A hereto (the
"Conversion Notice") by facsimile (with the original of such notice forwarded
with the foregoing courier) to the Company that the Holder elects to convert all
or the portion of the Outstanding Amount of this Debenture specified therein,
which notice and election shall be irrevocable by the Holder, provided, however,
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon conversion unless this Debenture with
evidence of the principal amount hereof to be converted is delivered to the
Company as provided above, or the
-3-
<PAGE> 4
Holder notifies the Company that this Debenture has been lost, stolen or
destroyed and promptly executes an agreement reasonably satisfactory to the
Company to indemnify the Company from any loss which may be incurred by it in
connection with this Debenture. The date on which a Conversion Notice is given
(the "Conversion Date") shall be deemed to be the date the Company received by
facsimile the Conversion Notice, as evidenced by a printed confirmation of
receipt received by the Holder. Upon receipt of any Conversion Notice, the
Company shall immediately verify the Holder's calculation of the Conversion
Rate.
(ii) Issuance of Certificates. In the case of any
Conversion Notice given by the Holder, the Company shall use its best efforts to
cause the transfer agent for its Common Stock to issue and deliver as promptly
as practicable and in no event later than five (5) business days after receipt
by the Company of the Conversion Notice and the Debenture, or after receipt of
the agreement and indemnification referred to in Section 4(c) (the "Delivery
Date"), to such Holder or to its designee, a certificate or certificates for the
number of shares of Common Stock to which the Holder shall be entitled, together
with a Debenture for the principal amount not submitted for conversion. The
person or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date. If the Company shall not
have the requisite number of shares of Common Stock issuable upon conversion of
the Debenture by the Holder, then, without limiting the Company's obligation to
convert the Debenture, such conversion shall be made for each Holder, pro rata
according to the portion of the total Outstanding Amount of the portion of the
Debentures sought to be converted. At the Holder's option, the request for
conversion by the Holder shall be null and void for any portion of the
Debentures for which the Company does not have shares of Common Stock issuable
upon conversion as of the Conversion Date.
5. Stock Splits: Dividends, Adjustments, Reorganizations
(a) Subdivisions, Combinations, etc. If the Company shall
subdivide its outstanding Common Stock, by split-up, spin-off, or otherwise, or
combine its outstanding Common Stock, then the Conversion Rate in effect as of
the date of such subdivision, split-up, spin-off or combination shall be
determined with reference to the Market Price for shares of Common Stock as
reported after such subdivision split up, spin-off or combination without other
adjustment.
(b) Adjustment for Merger, Reorganization; etc. In the event
that at any time or from time to time after the Closing Date, the Common Stock
issuable upon conversion of this Debenture is changed into the same or a
different number of shares of any class or classes of stock, whether in
connection with a merger or consolidation, by recapitalization,
reclassification, reorganization or otherwise (other than a subdivision or
combination of shares or stock dividend or reorganization provided for elsewhere
in this Section 5, then and in each such event the Holder shall have the right
thereafter to convert this Debenture into the kind of securities receivable upon
such merger, recapitalization, reclassification or other change, all subject to
further adjustment as provided herein. In such event, the formula set forth
herein for conversion shall be equitably adjusted to reflect such change in
number of shares or, if shares of a new class of stock are issued, to reflect
the market price of the class or classes of stock (applying the same factors
used in
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<PAGE> 5
determining the Market Price for Shares of Common Stock) issued in connection
with the above described transaction.
(c) Certificate as to Adjustments. Upon the occurrence of
each adjustment pursuant to this Section 5, the Company at its expense shall
furnish to the Holder a certificate from its independent auditors or an
investment banking firm setting forth (i) in reasonable detail the facts upon
which such adjustment is based, and (ii) the number of shares of Common Stock
and the amount of other property or securities that after giving effect thereto
would be received by the Holder upon conversion of this Debenture.
(d) Disputes. In the event of a reasonable, good faith
dispute between the Holder and the Company with respect to the adjustments
required by Sections 5(a) or (b), then, at the option of either the Holder or
the Company, the dispute shall be submitted to the American Arbitration
Association for resolution according to the then applicable rules thereof. The
cost of such proceeding shall be shared 50% by the Holder and 50% by the
Company, except that each party shall bear its own legal and other expenses.
Nothing in this Section 5(d) shall limit the Holder's legal remedies with
respect to any other matter.
6. Fractional Shares. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder. The
number of shares of Common Stock that are issuable upon any conversion shall be
rounded up or down to the nearest whole share.
7. Reservation of Stock Issuable Upon Conversion
The Company shall use its best efforts to reserve and keep available at
all times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue shares of its Common
Stock upon conversion of the Debenture; provided, however, that the aggregate
number of shares so reserved shall initially be 850,000 shares (after giving
effect to the one-for-ten reverse split of the Company's common stock approved
March 4, 1998 by the stockholders). The number of shares so reserved may be
reduced by the number of shares actually delivered pursuant to partial
conversion of the Debenture and the number of shares so reserved shall be
increased or decreased proportionally to reflect stock splits, stock dividends
and other distributions. In the event that the number of shares so reserved
shall be insufficient for issuance upon conversion of the Debenture (without
giving effect to any applicable conversion restrictions), the Company shall use
its best efforts and all due diligence to increase the number of shares so
reserved (without giving effect to any applicable conversion restrictions) to
cure such deficiency and, if necessary, to obtain the approval by its
shareholders therefor, including the authorization of such additional number of
shares of Common Stock as may be required to issue such shares in excess of the
number so reserved (either in the aggregate or as to the Debenture) or in excess
of such limitation, as the case may be.
8. No Impairment. The Company shall not intentionally take any action
which would impair the contractual rights and privileges of the Debenture set
forth herein or of the Holder thereof.
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<PAGE> 6
9. Limitations on Holder's Obligation to Convert. Notwithstanding
anything to the contrary contained herein, no Holder shall be required to
convert any part of this Debenture in excess of the portion then convertible
into that number of shares of Common Stock specified in the Holder's
representation to the Company that, after giving effect to the shares of the
Company's Common Stock to be issued pursuant to such Conversion Notice, the
total number of shares of Common Stock deemed beneficially owned by the Holder,
together with all shares of the Company's Common Stock deemed beneficially owned
by the Holder's "affiliates" as defined in Rule 144 of the Act, would exceed
9.9% of the total issued and outstanding shares of the Company's Common Stock.
10. Obligations Absolute. No provision of this Debenture, other than
conversion as provided herein, shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the manner,
herein prescribed.
11. Waivers of Demand, Etc. The Company hereby expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of intent to accelerate, prior notice of
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payments of all
sums owing and to be owing hereon, regardless of and without any notice (except
as required by law), diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
12. Replacement Debenture. In the event that the Holder notifies the
Company that this Debenture has been lost, stolen or destroyed, a replacement
Debenture identical in all respects to the original Debenture (except for
registration number and Outstanding Amount, if different than that shown on the
original Debenture) shall be issued to the Holder, provided that the Holder
executes and delivers to the Company an agreement reasonably satisfactory to the
Company to indemnity the Company from any loss incurred by it in connection with
the Debenture and provided that the Company is provided a form of Debenture for
such replacement purposes.
13. Payment of Expenses. The Company agrees to pay all debts and
expenses, including reasonable attorneys' fees and expenses, which may be
incurred by the Holder in enforcing the provisions of this Debenture and/or
collecting any amount due under this Debenture.
14. Defaults. If one or more of the following events (hereinafter
called "Events of Default") shall occur:
(a) The Company shall fail to perform or observe any
covenant or agreement under this Debenture or any other material obligation of
the Company to the Holder, and such failure shall continue uncured for a period
of ten (10) business days after notice from the Holder of such failure, or the
Company shall fail to make any payments upon redemption of this Debenture or
fail to issue shares of Common Stock upon conversion of this Debenture; or
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<PAGE> 7
(b) The Company shall (i) make a general assignment for the
benefit of creditors or commence proceedings for its dissolution; or (ii) apply
for or consent to the appointment of a trustee, liquidator or receiver for it or
for a substantial part of its property or business; or
(c) A trustee, liquidator or receiver shall be appointed for
the Company or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or
(d) Any governmental agency or any court of competent
jurisdiction shall assume custody or control of the whole or any substantial
portion of the properties or assets of the Company and shall not be dismissed
within sixty (60) days thereafter, or
(e) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings, or relief under any bankruptcy law or any law
for the relief of debt shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution, or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit to any material
allegations of, or default in answering a petition filed in, any such
proceeding;
then, or at any time thereafter prior to the date on which all continuing Events
of Default have been cured, and in each and every such case, unless such Event
of Default shall have been waived in writing by the Holder (which waiver shall
not be deemed to be a waiver of any subsequent default) at the option of the
Holder and in the Holder's sole discretion, the Holder may, by notice to the
Company declare this Debenture immediately due and payable, and the Holder may
immediately, and without expiration of any period of grace, enforce any and all
of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law. In such event, the Debenture shall be redeemed at a
redemption price in cash equal to the Outstanding Amount.
15. Savings Clause. In case any provision of this Debenture is held
by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
16. Entire Agreement. This Debenture and the agreements referred to
in this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof. Neither
this Debenture nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and the
Holder.
17. Assignment, Etc. The Holder may, transfer or assign this
Debenture or any interest herein (but in no event in an amount less than
$100,000 in Outstanding Amount or, if less than $100,000, the total Outstanding
Amount hereof) and may mortgage, encumber or transfer any of its rights or
interest in and to this Debenture or any part hereof, and each assignee,
transferee and
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<PAGE> 8
mortgagee (which may include any affiliate of the Holder) shall have the right
to so transfer or assign its interest; provided, however, that prior to any
transfer occurring before a registration statement contemplated by Section
hereof becomes effective, Holder will furnish the Company with an opinion of
counsel to the effect that such assignment, transfer, mortgage or other
encumbrance is exempt from the registration requirements under the Securities
Act and without limiting the generality of the foregoing will not violate, and
will not cause the Company to be in violation of Rule 152 promulgated under the
Securities Act. Each such assignee, transferee and mortgagee shall have all of
the rights and obligations of the Holder under this Debenture. The Company
agrees that, subject to the foregoing, after receipt by the Company of written
notice of assignment from the Holder or from the Holders' assignee, all
principal, interest, and other amounts which are then due and thereafter become
due under this Debenture shall be paid to such assignee at the place of payment
designated in such notice. This Debenture shall be binding upon the Company and
its successors and shall inure to the benefit of the Holder and its successors
and assigns.
18. No Waiver. No failure on the part of the Holder to exercise, and
no delay in exercising, any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
19. Miscellaneous. Unless otherwise provided herein, any notice or
other communication to a party hereunder shall be deemed to have been duly given
if personally delivered or sent by registered or certified mail, return receipt
requested, postage prepaid with a copy in each case sent on the same day to the
party by facsimile, Federal Express or other such expedited means to said party
at its address set forth herein or such other address as either may designate
for itself in such notice to the other and communications shall be deemed to
have been received when delivered personally or, if sent by mail or Federal
Express, when actually received by the party to whom it is addressed. Copies of
all notices to the Company shall be sent to:
DynaGen, Inc.
840 Memorial Drive
Cambridge, MA 02139
Attention: President
Telephone: (617) 491-2527
Telecopy: (617) 354-3902
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: David A. Broadwin, Esq.
Telephone: (617) 832-1259
Telecopy: (617) 832-7000
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<PAGE> 9
If to the Investor, to:
Endeavor Capital Fund S.A.
14/14 Divrei Chaim Street
Jerusalem 94479, Israel
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, NY 10016
Whenever the sense of this Debenture requires, words in the singular shall be
deemed to include the plural and words in the plural shall be deemed to include
the singular. Section headings are for convenience only and shall not affect the
meaning of this document.
20. Choice of Law and Venue: Waiver of Jury Trial. THIS DEBENTURE
SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW THEREOF. The parties hereby (i)
irrevocably submit to the exclusive jurisdiction of the United States District
Court for the Southern District of New York for the purposes of any suit, action
or proceeding arising out of or relating to this Debenture and (ii) waive, and
agree not to assert in any such suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of such court, that the suit, action
or proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. The Company consents to process being served
in any such suit, action or proceeding by mailing a copy thereof to the Company
at the address in effect for notices to it under this Debenture and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 20 shall affect or limit any right to serve
process in any other manner permitted by law.
21. Registration. The Company shall, as soon as practicable after
receiving a request in writing from the Holder pursuant to this Section 21 but
in no event more than 30 days following such receipt, file with the SEC a
Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of registration statement as is then available to effect a
registration of the shares issuable hereunder), and shall thereafter use its
best efforts to cause such registration statement to become effective. The
shares issuable hereunder shall also be entitled to "piggy-back" registration on
the next registration statement on Form S-3 filed by the Company after the date
hereof.
22. Late Delivery. The Company understands that a delay in the
issuance of the shares of Common Stock issuable upon conversion of this
Debenture beyond the Delivery Date could result in economic loss to the Holder.
As compensation to the Holder for such loss, the Company agrees to pay late
payments to the Holder for late issuance of such shares in accordance with the
following
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<PAGE> 10
schedule (where "No. Business Days Late" is defined as the number of
business days beyond five (5) business days from the Delivery Date:
-10-
<PAGE> 11
Late Payment for Each $10,000 of Outstanding
No. Business Days Late Principal Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
> 10 $1,000 +$200 for each
Business Day Late beyond
10 days
The Company shall pay any payments incurred under this Section 22 in immediately
available funds upon demand. Nothing herein shall limit the Holder's right to
pursue actual damages for the Company's failure to issue and deliver Common
Stock to the Holder. Furthermore, in addition to any other remedies which may be
available to the Holder, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock within five business days after
the Conversion Date, the Holder will be entitled to revoke the relevant
Conversion Notice by delivering a notice to such effect to the Company whereupon
the Company and the Holder shall each be restored to their respective positions
immediately prior to delivery of such Conversion Notice (and in such event, the
late payments described above shall not be due and payable).
* * *
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<PAGE> 12
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated as of: March 19, 1998
DYNAGEN, INC.
By: /s/ Dhananjay G. Wadekar
Name: Dhananjay G. Wadekar
Title:
The Holder agrees to be bound by all the provisions of this Debenture
applicable to it.
THE ENDEAVOR CAPITAL FUND S.A.
By: /s/ Shmuli Margulies
Name: Shmuli Margulies
Title: Director
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<PAGE> 13
EXHIBIT A
NOTICE OF CONVERSION
To: DynaGen, Inc.
The undersigned, the holder of the within Debenture, hereby irrevocably
elects to convert this Debenture for the following principal amount, together
with interest accrued thereon up to the date hereof, for the number of shares of
Common Stock into which such aggregate amount is convertible as of the
Conversion Date pursuant to Section 4(b) of the Debenture.
PRINCIPAL AMOUNT: $______________________;
The undersigned requests that the certificate for such shares of Common
Stock be issued in the name of, and delivered to the holder at the address
specified below.
Dated:__________________
By:______________________________
Name:____________________________
Title:_____________________________
(Signature must conform to name of
holder as specified on the face of
the Debenture)
Address:
____________________________________
____________________________________
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<PAGE> 1
Exhibit 4f
THE SECURITY REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
SECURITY MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITY UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS RECEIVED
THE WRITTEN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE,
ASSIGNMENT OR TRANSFER DOES NOT INVOLVE A TRANSACTION REQUIRING REGISTRATION OF
SUCH SECURITY UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS.
WARRANT
MARCH 19, 1998
VOID UNLESS EXERCISED BEFORE MARCH 19, 2001
DYNAGEN, INC.
DYNAGEN, INC., a Delaware corporation (the "Company"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Holder is entitled, subject to and in accordance
with the terms set forth below, to purchase from the Company, commencing on the
date hereof, at any time or from time to time before 5:00 P.M. Eastern Standard
Time on March 19, 2001, a number of shares of fully paid and non-assessable
shares of common stock, equal to the Warrant Percentage, as hereinafter defined,
at an aggregate exercise price of U.S. $150,000 (the "Exercise Price").
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" means DynaGen, Inc., a Delaware
corporation, and any corporation that succeeds to or assumes
the obligations of the Company hereunder.
(b) The term "Common Stock" means (a) the Company's common stock,
$.01 par value per share.
(c) The term "Exercise Date" means any date on which this Warrant
is exercised in whole or in part in accordance with the terms
hereof.
(d) The term "Other Securities" means any stock and other
securities of any other person (corporate or otherwise) which
the holder of this Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the
Warrant, in lieu of or in
<PAGE> 2
addition to Common Stock, or which at any time shall be
issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to
Section 3.
(e) The term "Warrant Amount" means the number of shares of Common
Stock equal to one percent (1%) of the shares of Common Stock
issued and outstanding at the close of business on the day
immediately preceding any Exercise Date. Solely for the
purposes of calculating the Warrant Amount, shares of Common
Stock issuable pursuant to the terms of any convertible
security of the Company within sixty days of any Exercise Date
shall be deemed issued and outstanding, except for any such
shares of Common Stock issuable upon exercise of any option,
warrant or other derivative security issued to any employee of
the Company or pursuant to any benefit plan of the Company.
1. Exercise of Warrant
(a) Exercise in Full. This Warrant may be exercised in full by the
holder hereof by surrender of this Warrant, with the form of subscription
attached hereto duly executed by such holder, to the Company at its principal
office, accompanied by payment of the Exercise Price, in cash or by certified or
official bank check payable to the order of the Company.
(b) Partial Exercise. This Warrant may be exercised in part by
surrender of this Warrant in the manner and at the place provided in Section
1(a) except that this Warrant may not be exercised in any increment less than
one-third of the original Warrant Amount. The amount payable by the holder on
such partial exercise shall be the amount obtained by multiplying (i) the
Exercise Price by (ii) the percentage of the Warrant Amount for which the
Warrant is being exercised. Upon any such partial exercise, the Company at its
expense will forthwith issue and deliver to or upon the order of the holder
hereof a new Warrant of like tenor, in the name of the holder hereof, stating on
the face thereof (x) the remaining percentage of the Warrant Amount for which
the Warrant may still be exercised and (y) the remaining portion of the Exercise
Price.
2. Delivery of Stock Certificates on Exercise. As soon as practicable
after the exercise of this Warrant, and in any event within five (5) trading
days after the Company receives (i) the original form of subscription properly
completed, (ii) the Warrant and (iii) payment of the Exercise Price pursuant to
Section 1 above, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the holder hereof, or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct, a certificate or certificates for the
number of fully paid and non-assessable shares of Common Stock (or Other
Securities) to which such holder shall be entitled on such exercise. The
exercise date of this Warrant shall be the date on which the Company receives,
by telecopier or otherwise, the properly completed form of subscription attached
hereto.
2
<PAGE> 3
3. Adjustment for Reorganization, Consolidation or Merger. In case at
any time or from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person or entity, or (c) transfer
all or substantially all of its properties or assets to any other person under
any plan or arrangement contemplating the dissolution of the Company, then, in
each such case, the holder of this Warrant, on the exercise hereof as provided
in Section 1 at any time after the consummation of any corporate event referred
to in this Section 3 shall receive, upon the proper and rightful exercise of
this Warrant, in lieu of the Common Stock (or Other Securities) issuable on such
exercise prior to such consummation or such effective date, the Other Securities
and any other property (including cash) to which such holder would have been
entitled upon such event, if such holder had so exercised this Warrant
immediately prior thereto. Upon any corporate event referred to in this Section
3, this Warrant shall continue in full force and effect and the terms hereof
shall be applicable to the Other Securities and any other property receivable on
the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger, as the case may be, and shall be binding upon the
issuer of any such stock or other securities.
4. Notices of Record Date. In the event of
(a) any taking by the Company of a record of the holders of any
class or securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right,
or
(b) any corporate event referred to in Section 3, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any corporate event referred to in Section 3 is to take
place, and the time, if any is to be fixed, as of which the holders of record of
Common Stock (or Other Securities) shall be entitled to exchange their shares of
Common Stock (or Other Securities) for securities or other property deliverable
on any corporate event referred to in Section 3. Such notice shall be mailed at
least twenty (20) days prior to the date specified in such notice on which any
such action is to be taken.
5. Reservation of Common Stock Issuable on Exercise of Warrant. The
Company will at all times reserve and keep available solely for issuance and
delivery upon exercise of this Warrant, a sufficient number of shares of Common
Stock from time to time issuable on the exercise of this Warrant, and the shares
of Common Stock which the holder shall receive upon exercise of this Warrant
will be duly authorized, validly issued, fully paid and non-assessable.
3
<PAGE> 4
6. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
7. Warrantholder Not Deemed Stockholder; Restrictions on Transfer. This
Warrant is issued upon the following terms, to all of which each holder or owner
hereof by the taking hereof consents and agrees:
(a) Except as otherwise expressly set forth in Section 3, with
respect to computing adjustments with respect hereto, no
holder of this Warrant shall, as such, be deemed the holder of
Common Stock that may at any time be issuable upon exercise of
this Warrant for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon such holder, as
such, any of the rights of a stockholder of the Company until
such holder shall have delivered formal notice to the Company
of an intention to exercise this Warrant, tendered promptly
the consideration required for exercise (whether cash or
securities), exercised the Warrant, and been issued shares of
Common Stock in accordance with the provisions hereof.
(b) This Warrant is not transferable or assignable to any party
other than an affiliate of the Holder without the prior
written consent of the Company. A holder that wishes to
transfer or assign this Warrant shall provide to the Company
an opinion of counsel satisfactory to the Company that such
transfer is permissible under applicable law.
8. Notices. All notices and other communications from the Company to
the holder of this Warrant shall be sent by (i) first class mail, postage
prepaid, (ii) electronic facsimile transmission, or (iii) express overnight
courier service, at such address or facsimile number as may have been furnished
to the Company in writing by such holder or, until any such holder furnishes to
the Company an address or facsimile number, then to, and at the address or
facsimile number of, the last holder of this Warrant who has so furnished an
address to the Company.
9. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant and the shares of Common Stock underlying this Warrant
shall be construed and enforced in accordance with and
4
<PAGE> 5
governed by the laws of the State of Delaware. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
Dated: March 19, 1998 DYNAGEN, INC.
By: Dhananjay G. Wadekar
Name: Dhananjay G. Wadekar
Title: Executive Vice President
ATTEST:
By:______________________________
5
<PAGE> 6
FORM OF SUBSCRIPTION
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
To: DynaGen, Inc.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, a number of
shares of common stock, $0.01 par value per share ("Common Stock") of DynaGen,
Inc., a Delaware corporation, equal to __________% of the Warrant Amount as
defined in the Warrant, on the date this form of subscription is received by the
Company in accordance with the terms of the Warrant, and herewith makes payment
of $__________ therefor, and requests that the certificates for such shares be
issued in the name of, and delivered to__________________________, whose address
is ______________________________________.
Dated:
By:______________________________
Name:____________________________
Signature must conform to name of holder as specified
on the face of the Warrant)
Address:
_________________________________
_________________________________
6
<PAGE> 7
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and
transfers unto ____________ the right represented by the within Warrant to
purchase the number of shares of Common Stock of DynaGen, Inc., a Delaware
corporation, to which the within Warrant relates, and appoints ______________
attorney to transfer such right on the books of DynaGen, Inc., a Delaware
corporation, with full power of substitution in the premises.
Dated:
By:______________________________
Name:____________________________
Signature must conform to name of holder as specified
on the face of the Warrant)
Address:
_________________________________
_________________________________
Signed in the presence of:
_____________________________
Name:________________________
7
<PAGE> 1
Exhibit 4g
AGREEMENT
THIS AGREEMENT, dated March 31, 1998 (this "Agreement"), by and between
DynaGen, Inc., a Delaware corporation ("DynaGen"), Dominion Capital Fund Ltd.
("Dominion"), and Sovereign Partners ("Sovereign" and collectively with
Dominion, the "Purchasers").
W I T N E S S E T H T H A T:
WHEREAS, DynaGen and The Endeavor Capital Fund S.A. ("Endeavor") are
parties to that certain Stock Purchase Agreement, dated as of August 20, 1997
(the "Stock Purchase Agreement"); providing, among other things, for the sale
and purchase of the Series D Convertible Preferred Stock, $.01 par value per
share (the "Series D Preferred Stock"), of DynaGen and permitting Endeavor to
assigns its obligations to purchase Series D Preferred Stock thereunder; and
WHEREAS, Endeavor has assigned certain such obligations to the
Purchasers.
WHEREAS, DynaGen wishes to sell and Purchasers wish to purchase a
tranche of the Series D Preferred Stock;
NOW, THEREFORE, in consideration of this Agreement and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Sale and Purchase. DynaGen shall sell, and Purchasers shall
purchase, a tranche of the Series D Preferred Stock in the principal amount of
$1,000,000 (the "Second Tranche") required to be purchased and sold in
accordance with the Stock Purchase Agreement and this Agreement.
2. Delivery of Shares and Payment. Dominion shall pay the purchase
price for one-half of the Second Tranche by delivering $500,000 immediately
available good funds in United States Dollars (the "Cash") to DynaGen and
Sovereign shall pay the purchase price for one-half of the Second Tranche by
delivery of that certain 7% Convertible Debenture due February 26, 1999 in the
original principal amount of $500,000 (the "7% Debenture") to DynaGen. Promptly
following receipt of the Cash and the 7% Debenture, but in any event within two
business days thereafter, DynaGen shall deliver certificates (the
"Certificates") for the shares of Series D Preferred Stock constituting the
Second Tranche duly executed on behalf of DynaGen to Sovereign and Dominion.
Time is of the essence with respect to the provisions of this Section 2.
3. Additional Consideration for Exchange of the 7% Debenture.
Concurrently with the delivery of the Certificates, DynaGen shall execute and
deliver to each Purchaser a debenture in the original principal amount of
$87,500 and otherwise in the form of Exhibit A hereto (the "Debenture").
<PAGE> 2
4. Waivers and Acknowledgments. Each Purchaser hereby waives the
conditions set forth below to its obligation to purchase the Second Tranche.
This waiver is solely for the purposes of the sale of the Second Tranche and is
not a continuing waiver nor is it an agreement to waive the same requirements in
the future. Each Purchaser hereby waives the requirements of the Stock Purchase
Agreement set forth in Section 4 i. (a) (requiring a five day prior written
notice), 4 i. (b) (limiting each tranche to $400,000), and 4i. (c)(i), (iii) and
(iv) (requiring effectiveness of the Registration Statement and certain other
matters). Each Purchaser acknowledges that it has been informed that DynaGen has
received a notice, dated February 26, 1998, from the NASDAQ stating that DynaGen
does not meet the listing requirements of the NASDAQ and is subject to
delisting. Sovereign acknowledges that it has been informed that Endeavor has
entered into an agreement with DynaGen, dated March 19, 1998, which settles
certain amounts owed by DynaGen to Endeavor under various contracts and
Sovereign has been provided with a copy of such agreement and each Purchaser
consents to be bound by it. Each Purchaser represents that the right to acquire
the Second Tranche has been assigned to it by Endeavor.
5. Representations and Warranties. Except as set forth on Exhibit A
hereto, the representations and warranties of DynaGen set forth in Section 3 of
the Stock Purchase Agreement are true and correct in all material respects.
6. Recent Transactions. Exhibit B hereto sets forth a true, correct and
complete list of all material transactions entered into by DynaGen since August
20, 1997.
7. Miscellaneous. Section 10 of the Stock Purchase Agreement shall also
govern this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
DYNAGEN, INC.
By: /s/ Dhananjay Wadekar
Name: Dhananjay Wadekar
Title: Chairman of the Board
SOVEREIGN PARTNERS
By: /s/ Stephen Hicks
Name: Stephen Hicks
Title:
2
<PAGE> 3
DOMINION CAPITAL FUND LTD.
By: /s/ Stephen Hicks
Name: Stephen Hicks
Title:
3
<PAGE> 1
Exhibit 4h
EXECUTION COPY
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.
8% CONVERTIBLE DEBENTURE DUE MARCH 31, 2003
THIS 8% CONVERTIBLE DEBENTURE ("Debenture") is issued by DynaGen,
Inc.,a corporation duly organized and existing under the laws of the State of
Delaware and having its principal address at 840 Memorial Drive, Cambridge,
Massachusetts 02139 (the "Company").
FOR VALUE RECEIVED, the Company promises to pay to Sovereign Partners,
having an address at 90 Grove Street, Richfield, CT 06877, the holder hereof, or
its order (the "Holder"), an amount equal to the principal sum of Eighty Seven
Thousand Five Hundred United States Dollars (U.S. $87,500) on March 31, 2003
(the "Maturity Date") plus interest accrued on the principal sum outstanding
under this Debenture from time to time, at the rate of 8% per annum due and
payable in arrears on the Maturity Date. Interest shall be calculated based on a
360 day year of twelve equal months. Accrual of interest shall commence on the
date hereof and shall continue until payment in full of the principal sum has
been made. This Debenture is payable on the Maturity Date solely in shares of
common stock, $0.01 par value per share, of the Company ("Common Stock"), valued
at the Market Price for Shares of Common Stock, as hereinafter defined. This
Debenture is subordinate to all secured indebtedness of the Company. This
Debenture may be redeemed by the Company upon thirty days' prior written notice,
to the holder for the then outstanding principal amount together with interest
accrued thereon; redemption shall be paid in cash.
This Debenture is subject to the following additional provisions:
1. Exchange. The Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different denominations, of not less than
$50,000 (or the total principal amount, if less than $50,000) each as requested
by the Holder surrendering the same. No service charge will be made for such
exchange.
2. Transfers. This Debenture may be transferred or exchanged in the
United States only in compliance with the Securities Act of 1933, as amended
(the "Securities Act"), and applicable state securities laws and in accordance
with other applicable provisions hereof. Prior to due presentment for transfer
of this Debenture, the Company may treat the person in whose name this Debenture
is duly registered as the owner hereof for the purpose of receiving payment as
herein provided and all
<PAGE> 2
other purposes, whether or not this Debenture is then overdue, and the Company
shall not be affected by notice to the contrary.
3. Definitions. For purposes hereof, the following terms shall have
the following meanings:
"Closing Date" shall mean the date of original issuance of this
Debenture.
"Common Stock" shall mean the Common Stock, par value $.01 per
share, of the Company.
"Conversion Date" shall have the meaning set forth in Section
4(c)(i).
"Conversion Date Market Price" shall mean, at any Conversion Date
the average Market Price for Shares of Common Stock for the five trading days
immediately preceding the Conversion Date.
"Conversion Notice" shall have the meaning set forth in Section
4(c).
"Conversion Rate" shall have the meaning set forth in Section 1(k).
"Event of Default" shall have the meaning set forth in Section 14.
"Market Price for Shares of Common Stock" shall mean the price of
one share of Common Stock determined as follows:
(i) If the Common Stock is listed on the Nasdaq SmallCap
Market, the closing bid price on the date of valuation, as reported by Bloomberg
Financial Markets; or
(ii) If the Common Stock is listed on any other national
securities exchange, the closing bid price on the date of valuation, as reported
by Bloomberg Financial Markets; or
(iii) If neither (i) nor (ii) apply, but the Common Stock is
quoted in the over-the-counter market on the pink sheets or bulletin board, the
lowest sales price on the date of valuation, as reported by Bloomberg Financial
Markets; or
(iv) If none of clause (i), (ii) or (iii) above applies, the
market value as determined by an independent nationally recognized investment
banking firm or financial advisor retained in good faith by the Company for such
purpose, taking into consideration, among other factors, the earnings history,
book value and prospects for the Company, and the prices at which shares of
Common Stock recently have been traded. Such determination shall be conclusive
and binding on all persons.
-2-
<PAGE> 3
"Outstanding Amount" shall mean the principal sum outstanding
under this Debenture and all accrued but unpaid interest thereon.
4. Conversion. This Debenture is subject to conversion as follows:
(a) (i) Holder's Right to Convert. This Debenture shall be
convertible at any time and from time to time after the Closing Date and until
the Maturity Date, at the option of the Holder hereof into fully paid, validly
issued and nonassessable shares of Common Stock.
(ii) Accrued But Unpaid Interest. Notwithstanding anything in
this Debenture to the contrary, the Outstanding Amount of this Debenture on any
Conversion Date shall include, without limitation, all accrued but unpaid
interest under this Debenture through such date.
(b) Conversion Price for Converted Shares. The Outstanding Amount
of this Debenture that is converted into shares of Common Stock shall be
convertible into the number of shares of Common Stock determined in accordance
with the following formula:
P + I
----------------------------
Conversion Date Market Price
P = principal amount of this Debenture submitted for
conversion
I = accrued but unpaid interest on the principal amount
of this Debenture submitted for conversion plus any
unpaid charges or amounts through the Conversion Date.
The number of shares of Common Stock into which the Outstanding Amount
of this Debenture may be converted pursuant to this Section 4(b) is hereafter
referred to as the "Conversion Rate."
(c) (i) Mechanics of Conversion. In order to convert this
Debenture (in whole or in part) into full shares of Common Stock, the Holder
shall surrender this Debenture, duly endorsed, by either overnight courier or
two-day courier, to the Company, and, in case of any conversion pursuant to
Section 4(a)(i), shall give written notice in the form of Exhibit A hereto (the
"Conversion Notice") by facsimile (with the original of such notice forwarded
with the foregoing courier) to the Company that the Holder elects to convert all
or the portion of the Outstanding Amount of this Debenture specified therein,
which notice and election shall be irrevocable by the Holder, provided, however,
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon conversion unless this Debenture with
evidence of the principal amount hereof to be converted is delivered to the
Company as provided above, or the Holder notifies the Company that this
Debenture has been lost, stolen or destroyed and promptly executes an agreement
reasonably satisfactory to the Company to indemnify the Company from any loss
which may be incurred by it in connection with this Debenture. The date on which
a Conversion
-3-
<PAGE> 4
Notice is given (the "Conversion Date") shall be deemed to be the date the
Company received by facsimile the Conversion Notice, as evidenced by a printed
confirmation of receipt received by the Holder. Upon receipt of any Conversion
Notice, the Company shall immediately verify the Holder's calculation of the
Conversion Rate.
(ii) Issuance of Certificates. In the case of any Conversion
Notice given by the Holder, the Company shall use its best efforts to cause the
transfer agent for its Common Stock to issue and deliver as promptly as
practicable and in no event later than five (5) business days after receipt by
the Company of the Conversion Notice and the Debenture, or after receipt of the
agreement and indemnification referred to in Section 4(c) (the "Delivery Date"),
to such Holder or to its designee, a certificate or certificates for the number
of shares of Common Stock to which the Holder shall be entitled, together with a
Debenture for the principal amount not submitted for conversion. The person or
persons entitled to receive the shares of Common Stock issuable upon conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on the Conversion Date. If the Company shall not have the
requisite number of shares of Common Stock issuable upon conversion of the
Debenture by the Holder, then, without limiting the Company's obligation to
convert the Debenture, such conversion shall be made for each Holder, pro rata
according to the portion of the total Outstanding Amount of the portion of the
Debentures sought to be converted. At the Holder's option, the request for
conversion by the Holder shall be null and void for any portion of the
Debentures for which the Company does not have shares of Common Stock issuable
upon conversion as of the Conversion Date.
5. Stock Splits: Dividends, Adjustments, Reorganizations
(a) Subdivisions, Combinations, etc. If the Company shall subdivide
its outstanding Common Stock, by split-up, spin-off, or otherwise, or combine
its outstanding Common Stock, then the Conversion Rate in effect as of the date
of such subdivision, split-up, spin-off or combination shall be determined with
reference to the Market Price for shares of Common Stock as reported after such
subdivision split up, spin-off or combination without other adjustment.
(b) Adjustment for Merger, Reorganization; etc. In the event that
at any time or from time to time after the Closing Date, the Common Stock
issuable upon conversion of this Debenture is changed into the same or a
different number of shares of any class or classes of stock, whether in
connection with a merger or consolidation, by recapitalization,
reclassification, reorganization or otherwise (other than a subdivision or
combination of shares or stock dividend or reorganization provided for elsewhere
in this Section 5, then and in each such event the Holder shall have the right
thereafter to convert this Debenture into the kind of securities receivable upon
such merger, recapitalization, reclassification or other change, all subject to
further adjustment as provided herein. In such event, the formula set forth
herein for conversion shall be equitably adjusted to reflect such change in
number of shares or, if shares of a new class of stock are issued, to reflect
the market price of the class or classes of stock (applying the same factors
used in determining the Market Price for Shares of Common Stock) issued in
connection with the above described transaction.
-4-
<PAGE> 5
(c) Certificate as to Adjustments. Upon the occurrence of each
adjustment pursuant to this Section 5, the Company at its expense shall furnish
to the Holder a certificate from its independent auditors or an investment
banking firm setting forth (i) in reasonable detail the facts upon which such
adjustment is based, and (ii) the number of shares of Common Stock and the
amount of other property or securities that after giving effect thereto would be
received by the Holder upon conversion of this Debenture.
(d) Disputes. In the event of a reasonable, good faith dispute
between the Holder and the Company with respect to the adjustments required by
Sections 5(a) or (b), then, at the option of either the Holder or the Company,
the dispute shall be submitted to the American Arbitration Association for
resolution according to the then applicable rules thereof. The cost of such
proceeding shall be shared 50% by the Holder and 50% by the Company, except that
each party shall bear its own legal and other expenses. Nothing in this Section
5(d) shall limit the Holder's legal remedies with respect to any other matter.
6. Fractional Shares. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder. The
number of shares of Common Stock that are issuable upon any conversion shall be
rounded up or down to the nearest whole share.
7. Reservation of Stock Issuable Upon Conversion
The Company shall use its best efforts to reserve and keep available at
all times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue shares of its Common
Stock upon conversion of the Debenture; provided, however, that the aggregate
number of shares so reserved shall initially be 750,000 shares. The number of
shares so reserved may be reduced by the number of shares actually delivered
pursuant to partial conversion of the Debenture and the number of shares so
reserved shall be increased or decreased proportionally to reflect stock splits,
stock dividends and other distributions. In the event that the number of shares
so reserved shall be insufficient for issuance upon conversion of the Debenture
(without giving effect to any applicable conversion restrictions), the Company
shall use its best efforts and all due diligence to increase the number of
shares so reserved (without giving effect to any applicable conversion
restrictions) to cure such deficiency and, if necessary, to obtain the approval
by its shareholders therefor, including the authorization of such additional
number of shares of Common Stock as may be required to issue such shares in
excess of the number so reserved (either in the aggregate or as to the
Debenture) or in excess of such limitation, as the case may be.
8. No Impairment. The Company shall not intentionally take any action
which would impair the contractual rights and privileges of the Debenture set
forth herein or of the Holder thereof.
9. Limitations on Holder's Obligation to Convert. Notwithstanding
anything to the contrary contained herein, no Holder shall be required to
convert any part of this Debenture in excess of the portion then convertible
into that number of shares of Common Stock specified in the Holder's
representation to the Company that, after giving effect to the shares of the
Company's Common Stock to be issued pursuant to such Conversion Notice, the
total number of shares of Common Stock
-5-
<PAGE> 6
deemed beneficially owned by the Holder, together with all shares of the
Company's Common Stock deemed beneficially owned by the Holder's "affiliates" as
defined in Rule 144 of the Act, would exceed 9.9% of the total issued and
outstanding shares of the Company's Common Stock.
10. Obligations Absolute. No provision of this Debenture, other than
conversion as provided herein, shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the manner,
herein prescribed.
11. Waivers of Demand, Etc. The Company hereby expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of intent to accelerate, prior notice of
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payments of all
sums owing and to be owing hereon, regardless of and without any notice (except
as required by law), diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
12. Replacement Debenture. In the event that the Holder notifies the
Company that this Debenture has been lost, stolen or destroyed, a replacement
Debenture identical in all respects to the original Debenture (except for
registration number and Outstanding Amount, if different than that shown on the
original Debenture) shall be issued to the Holder, provided that the Holder
executes and delivers to the Company an agreement reasonably satisfactory to the
Company to indemnity the Company from any loss incurred by it in connection with
the Debenture and provided that the Company is provided a form of Debenture for
such replacement purposes.
13. Payment of Expenses. The Company agrees to pay all debts and
expenses, including reasonable attorneys' fees and expenses, which may be
incurred by the Holder in enforcing the provisions of this Debenture and/or
collecting any amount due under this Debenture.
14. Defaults. If one or more of the following events (hereinafter
called "Events of Default") shall occur:
(a) The Company shall fail to perform or observe any covenant or
agreement under this Debenture or any other material obligation of the Company
to the Holder, and such failure shall continue uncured for a period of ten (10)
business days after notice from the Holder of such failure, or the Company shall
fail to make any payments upon redemption of this Debenture or fail to issue
shares of Common Stock upon conversion of this Debenture; or
(b) The Company shall (i) make a general assignment for the benefit
of creditors or commence proceedings for its dissolution; or (ii) apply for or
consent to the appointment of a trustee, liquidator or receiver for it or for a
substantial part of its property or business; or
(c) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or
-6-
<PAGE> 7
(d) Any governmental agency or any court of competent jurisdiction
shall assume custody or control of the whole or any substantial portion of the
properties or assets of the Company and shall not be dismissed within sixty (60)
days thereafter, or
(e) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings, or relief under any bankruptcy law or any law
for the relief of debt shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution, or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit to any material
allegations of, or default in answering a petition filed in, any such
proceeding;
then, or at any time thereafter prior to the date on which all continuing Events
of Default have been cured, and in each and every such case, unless such Event
of Default shall have been waived in writing by the Holder (which waiver shall
not be deemed to be a waiver of any subsequent default) at the option of the
Holder and in the Holder's sole discretion, the Holder may, by notice to the
Company declare this Debenture immediately due and payable, and the Holder may
immediately, and without expiration of any period of grace, enforce any and all
of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law. In such event, the Debenture shall be redeemed at a
redemption price in cash equal to the Outstanding Amount.
15. Savings Clause. In case any provision of this Debenture is held
by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
16. Entire Agreement. This Debenture and the agreements referred to
in this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof. Neither
this Debenture nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and the
Holder.
17. Assignment, Etc. The Holder may, transfer or assign this
Debenture or any interest herein (but in no event in an amount less than $50,000
in Outstanding Amount or, if less than $50,000, the total Outstanding Amount
hereof) and may mortgage, encumber or transfer any of its rights or interest in
and to this Debenture or any part hereof, and each assignee, transferee and
mortgagee (which may include any affiliate of the Holder) shall have the right
to so transfer or assign its interest; provided, however, that prior to any
transfer occurring before a registration statement contemplated by Section 21
hereof becomes effective, Holder will furnish the Company with an opinion of
counsel to the effect that such assignment, transfer, mortgage or other
encumbrance is exempt from the registration requirements under the Securities
Act and without limiting the generality of the foregoing will not violate, and
will not cause the Company to be in violation of Rule 152 promulgated under the
Securities Act. Each such assignee, transferee and mortgagee shall have all of
the rights and obligations of the Holder under this Debenture. The Company
agrees that, subject
-7-
<PAGE> 8
to the foregoing, after receipt by the Company of written notice of assignment
from the Holder or from the Holders' assignee, all principal, interest, and
other amounts which are then due and thereafter become due under this Debenture
shall be paid to such assignee at the place of payment designated in such
notice. This Debenture shall be binding upon the Company and its successors and
shall inure to the benefit of the Holder and its successors and assigns.
18. No Waiver. No failure on the part of the Holder to exercise, and
no delay in exercising, any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
19. Miscellaneous. Unless otherwise provided herein, any notice or
other communication to a party hereunder shall be deemed to have been duly given
if personally delivered or sent by registered or certified mail, return receipt
requested, postage prepaid with a copy in each case sent on the same day to the
party by facsimile, Federal Express or other such expedited means to said party
at its address set forth herein or such other address as either may designate
for itself in such notice to the other and communications shall be deemed to
have been received when delivered personally or, if sent by mail or Federal
Express, when actually received by the party to whom it is addressed. Copies of
all notices to the Company shall be sent to:
DynaGen, Inc.
840 Memorial Drive
Cambridge, MA 02139
Attention: President
Telephone: (617) 491-2527
Telecopy: (617) 354-3902
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: David A. Broadwin, Esq.
Telephone: (617) 832-1259
Telecopy: (617) 832-7000
-8-
<PAGE> 9
If to the Investor, to:
Sovereign Partners
90 Grove Street
Richfield, CT 06877
Attention: Stephen Hicks
Telephone: ______________
Telecopy: ______________
Whenever the sense of this Debenture requires, words in the singular shall be
deemed to include the plural and words in the plural shall be deemed to include
the singular. Section headings are for convenience only and shall not affect the
meaning of this document.
20. Choice of Law and Venue: Waiver of Jury Trial. THIS DEBENTURE
SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW THEREOF. The parties hereby (i)
irrevocably submit to the exclusive jurisdiction of the United States District
Court for the Southern District of New York for the purposes of any suit, action
or proceeding arising out of or relating to this Debenture and (ii) waive, and
agree not to assert in any such suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of such court, that the suit, action
or proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. The Company consents to process being served
in any such suit, action or proceeding by mailing a copy thereof to the Company
at the address in effect for notices to it under this Debenture and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 20 shall affect or limit any right to serve
process in any other manner permitted by law.
21. Registration. The Company shall, as soon as practicable after
receiving a request in writing from the Holder pursuant to this Section 21 but
in no event more than 30 days following such receipt, file with the SEC a
Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of registration statement as is then available to effect a
registration of the shares issuable hereunder), and shall thereafter use its
best efforts to cause such registration statement to become effective. If such
registration statement has not been declared effective by the 90th day following
the notice referred to in this Section 21, then the Company shall pay to the
Holder an amount equal to 2 1/2 percent of the then outstanding principal amount
of this Debenture for each month from such 90th day until the registration
statement is declared effective by the SEC, provided, that such payment shall be
prorated for periods of less than one month. The shares issuable hereunder shall
also be entitled to "piggy-back" registration on the next registration statement
on Form S-3 filed by the Company after the date hereof.
22. Late Delivery. The Company understands that a delay in the
issuance of the shares of Common Stock issuable upon conversion of this
Debenture beyond the Delivery Date could result in economic loss to the Holder.
As compensation to the Holder for such loss, the Company agrees
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<PAGE> 10
to pay late payments to the Holder for late issuance of such shares in
accordance with the following schedule (where "No. Business Days Late" is
defined as the number of business days beyond five (5) business days from the
Delivery Date:
<TABLE>
<CAPTION>
Late Payment for Each $10,000 of Outstanding
No. Business Days Late Principal Amount Being Converted
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
Greater than 10 $1,000 +$200 for each
Business Day Late beyond
10 days
</TABLE>
The Company shall pay any payments incurred under this Section 22 in immediately
available funds upon demand. Nothing herein shall limit the Holder's right to
pursue actual damages for the Company's failure to issue and deliver Common
Stock to the Holder. Furthermore, in addition to any other remedies which may be
available to the Holder, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock within five business days after
the Conversion Date, the Holder will be entitled to revoke the relevant
Conversion Notice by delivering a notice to such effect to the Company whereupon
the Company and the Holder shall each be restored to their respective positions
immediately prior to delivery of such Conversion Notice (and in such event, the
late payments described above shall not be due and payable).
* * *
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<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated as of , 1998
------------
DYNAGEN, INC.
By: Dhananjay G. Wadekar
-----------------------------------
Name: Dhananjay G. Wadekar
Title:
The Holder agrees to be bound by all the provisions of this Debenture
applicable to it.
SOVEREIGN PARTNERS
By: /s/ Stephen Hicks
---------------------------------------
Name:
Title:
-11-
<PAGE> 12
EXHIBIT A
NOTICE OF CONVERSION
To: DynaGen, Inc.
The undersigned, the holder of the within Debenture, hereby irrevocably
elects to convert this Debenture for the following principal amount, together
with interest accrued thereon up to the date hereof, for the number of shares of
Common Stock into which such aggregate amount is convertible as of the
Conversion Date pursuant to Section 4(b) of the Debenture.
PRINCIPAL AMOUNT: $______________________;
The undersigned requests that the certificate for such shares of Common
Stock be issued in the name of, and delivered to the holder at the address
specified below.
Dated:__________________
By:______________________________
Name:____________________________
Title:_____________________________
(Signature must conform to name of
holder as specified on the face of
the Debenture)
Address:
___________________________________
___________________________________
-12-
<PAGE> 1
Exhibit 4i
EXECUTION COPY
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.
8% CONVERTIBLE DEBENTURE DUE MARCH 31, 2003
THIS 8% CONVERTIBLE DEBENTURE ("Debenture") is issued by DynaGen,
Inc.,a corporation duly organized and existing under the laws of the State of
Delaware and having its principal address at 840 Memorial Drive, Cambridge,
Massachusetts 02139 (the "Company").
FOR VALUE RECEIVED, the Company promises to pay to Dominion Capital
Fund Ltd., having an address at c/o Citco Asset Management, Bahamas Financial
Center, Shirley and Charlotte Streets, Nassau, Bahamas, the holder hereof, or
its order (the "Holder"), an amount equal to the principal sum of Eighty Seven
Thousand Five Hundred United States Dollars (U.S. $87,500) on March 31, 2003
(the "Maturity Date") plus interest accrued on the principal sum outstanding
under this Debenture from time to time, at the rate of 8% per annum due and
payable in arrears on the Maturity Date. Interest shall be calculated based on a
360 day year of twelve equal months. Accrual of interest shall commence on the
date hereof and shall continue until payment in full of the principal sum has
been made. This Debenture is payable on the Maturity Date solely in shares of
common stock, $0.01 par value per share, of the Company ("Common Stock"), valued
at the Market Price for Shares of Common Stock, as hereinafter defined. This
Debenture is subordinate to all secured indebtedness of the Company. This
Debenture may be redeemed by the Company upon thirty days' prior written notice,
to the holder for the then outstanding principal amount together with interest
accrued thereon; redemption shall be paid in cash.
This Debenture is subject to the following additional provisions:
1. Exchange. The Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different denominations, of not less than
$50,000 (or the total principal amount, if less than $50,000) each as requested
by the Holder surrendering the same. No service charge will be made for such
exchange.
2. Transfers. This Debenture may be transferred or exchanged in the
United States only in compliance with the Securities Act of 1933, as amended
(the "Securities Act"), and applicable state securities laws and in accordance
with other applicable provisions hereof. Prior to due presentment for transfer
of this Debenture, the Company may treat the person in whose name this Debenture
is duly registered as the owner hereof for the purpose of receiving payment as
herein provided and all
<PAGE> 2
other purposes, whether or not this Debenture is then overdue, and the Company
shall not be affected by notice to the contrary.
3. Definitions. For purposes hereof, the following terms shall have the
following meanings:
"Closing Date" shall mean the date of original issuance of this
Debenture.
"Common Stock" shall mean the Common Stock, par value $.01 per share,
of the Company.
"Conversion Date" shall have the meaning set forth in Section 4(c)(i).
"Conversion Date Market Price" shall mean, at any Conversion Date the
average Market Price for Shares of Common Stock for the five trading days
immediately preceding the Conversion Date.
"Conversion Notice" shall have the meaning set forth in Section 4(c).
"Conversion Rate" shall have the meaning set forth in Section 1(k).
"Event of Default" shall have the meaning set forth in Section 14.
"Market Price for Shares of Common Stock" shall mean the price of one
share of Common Stock determined as follows:
(i) If the Common Stock is listed on the Nasdaq SmallCap
Market, the closing bid price on the date of valuation, as reported by Bloomberg
Financial Markets; or
(ii) If the Common Stock is listed on any other national
securities exchange, the closing bid price on the date of valuation, as reported
by Bloomberg Financial Markets; or
(iii) If neither (i) nor (ii) apply, but the Common Stock is
quoted in the over-the-counter market on the pink sheets or bulletin board, the
lowest sales price on the date of valuation, as reported by Bloomberg Financial
Markets; or
(iv) If none of clause (i), (ii) or (iii) above applies, the
market value as determined by an independent nationally recognized investment
banking firm or financial advisor retained in good faith by the Company for such
purpose, taking into consideration, among other factors, the earnings history,
book value and prospects for the Company, and the prices at which shares of
Common Stock recently have been traded. Such determination shall be conclusive
and binding on all persons.
-2-
<PAGE> 3
"Outstanding Amount" shall mean the principal sum outstanding
under this Debenture and all accrued but unpaid interest thereon.
4. Conversion. This Debenture is subject to conversion as
follows:
(a) (i) Holder's Right to Convert. This Debenture shall
be convertible at any time and from time to time after the Closing Date and
until the Maturity Date, at the option of the Holder hereof into fully paid,
validly issued and nonassessable shares of Common Stock.
(ii) Accrued But Unpaid Interest. Notwithstanding
anything in this Debenture to the contrary, the Outstanding Amount of this
Debenture on any Conversion Date shall include, without limitation, all accrued
but unpaid interest under this Debenture through such date.
(b) Conversion Price for Converted Shares. The
Outstanding Amount of this Debenture that is converted into shares of Common
Stock shall be convertible into the number of shares of Common Stock determined
in accordance with the following formula:
P + I
--------------------------------------
Conversion Date Market Price
P = principal amount of this Debenture submitted for conversion
I = accrued but unpaid interest on the principal amount
of this Debenture submitted for conversion plus any
unpaid charges or amounts through the Conversion
Date.
The number of shares of Common Stock into which the Outstanding Amount
of this Debenture may be converted pursuant to this Section 4(b) is hereafter
referred to as the "Conversion Rate."
(c) (i) Mechanics of Conversion. In order to convert
this Debenture (in whole or in part) into full shares of Common Stock, the
Holder shall surrender this Debenture, duly endorsed, by either overnight
courier or two-day courier, to the Company, and, in case of any conversion
pursuant to Section 4(a)(i), shall give written notice in the form of Exhibit A
hereto (the "Conversion Notice") by facsimile (with the original of such notice
forwarded with the foregoing courier) to the Company that the Holder elects to
convert all or the portion of the Outstanding Amount of this Debenture specified
therein, which notice and election shall be irrevocable by the Holder, provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon conversion unless this
Debenture with evidence of the principal amount hereof to be converted is
delivered to the Company as provided above, or the Holder notifies the Company
that this Debenture has been lost, stolen or destroyed and promptly executes an
agreement reasonably satisfactory to the Company to indemnify the Company from
any loss which may be incurred by it in connection with this Debenture. The date
on which a Conversion
-3-
<PAGE> 4
Notice is given (the "Conversion Date") shall be deemed to be the date the
Company received by facsimile the Conversion Notice, as evidenced by a printed
confirmation of receipt received by the Holder. Upon receipt of any Conversion
Notice, the Company shall immediately verify the Holder's calculation of the
Conversion Rate.
(ii) Issuance of Certificates. In the case of any
Conversion Notice given by the Holder, the Company shall use its best efforts to
cause the transfer agent for its Common Stock to issue and deliver as promptly
as practicable and in no event later than five (5) business days after receipt
by the Company of the Conversion Notice and the Debenture, or after receipt of
the agreement and indemnification referred to in Section 4(c) (the "Delivery
Date"), to such Holder or to its designee, a certificate or certificates for the
number of shares of Common Stock to which the Holder shall be entitled, together
with a Debenture for the principal amount not submitted for conversion. The
person or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date. If the Company shall not
have the requisite number of shares of Common Stock issuable upon conversion of
the Debenture by the Holder, then, without limiting the Company's obligation to
convert the Debenture, such conversion shall be made for each Holder, pro rata
according to the portion of the total Outstanding Amount of the portion of the
Debentures sought to be converted. At the Holder's option, the request for
conversion by the Holder shall be null and void for any portion of the
Debentures for which the Company does not have shares of Common Stock issuable
upon conversion as of the Conversion Date.
5. Stock Splits: Dividends, Adjustments, Reorganizations
(a) Subdivisions, Combinations, etc. If the Company shall
subdivide its outstanding Common Stock, by split-up, spin-off, or otherwise, or
combine its outstanding Common Stock, then the Conversion Rate in effect as of
the date of such subdivision, split-up, spin-off or combination shall be
determined with reference to the Market Price for shares of Common Stock as
reported after such subdivision split up, spin-off or combination without other
adjustment.
(b) Adjustment for Merger, Reorganization; etc. In the
event that at any time or from time to time after the Closing Date, the Common
Stock issuable upon conversion of this Debenture is changed into the same or a
different number of shares of any class or classes of stock, whether in
connection with a merger or consolidation, by recapitalization,
reclassification, reorganization or otherwise (other than a subdivision or
combination of shares or stock dividend or reorganization provided for elsewhere
in this Section 5, then and in each such event the Holder shall have the right
thereafter to convert this Debenture into the kind of securities receivable upon
such merger, recapitalization, reclassification or other change, all subject to
further adjustment as provided herein. In such event, the formula set forth
herein for conversion shall be equitably adjusted to reflect such change in
number of shares or, if shares of a new class of stock are issued, to reflect
the market price of the class or classes of stock (applying the same factors
used in determining the Market Price for Shares of Common Stock) issued in
connection with the above described transaction.
-4-
<PAGE> 5
(c) Certificate as to Adjustments. Upon the occurrence of each
adjustment pursuant to this Section 5, the Company at its expense shall furnish
to the Holder a certificate from its independent auditors or an investment
banking firm setting forth (i) in reasonable detail the facts upon which such
adjustment is based, and (ii) the number of shares of Common Stock and the
amount of other property or securities that after giving effect thereto would be
received by the Holder upon conversion of this Debenture.
(d) Disputes. In the event of a reasonable, good faith dispute
between the Holder and the Company with respect to the adjustments required by
Sections 5(a) or (b), then, at the option of either the Holder or the Company,
the dispute shall be submitted to the American Arbitration Association for
resolution according to the then applicable rules thereof. The cost of such
proceeding shall be shared 50% by the Holder and 50% by the Company, except that
each party shall bear its own legal and other expenses. Nothing in this Section
5(d) shall limit the Holder's legal remedies with respect to any other matter.
6. Fractional Shares. No fractional shares of Common Stock or
scrip representing fractional shares of Common Stock shall be issuable
hereunder. The number of shares of Common Stock that are issuable upon any
conversion shall be rounded up or down to the nearest whole share.
7. Reservation of Stock Issuable Upon Conversion
The Company shall use its best efforts to reserve and keep available at
all times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue shares of its Common
Stock upon conversion of the Debenture; provided, however, that the aggregate
number of shares so reserved shall initially be 750,000 shares. The number of
shares so reserved may be reduced by the number of shares actually delivered
pursuant to partial conversion of the Debenture and the number of shares so
reserved shall be increased or decreased proportionally to reflect stock splits,
stock dividends and other distributions. In the event that the number of shares
so reserved shall be insufficient for issuance upon conversion of the Debenture
(without giving effect to any applicable conversion restrictions), the Company
shall use its best efforts and all due diligence to increase the number of
shares so reserved (without giving effect to any applicable conversion
restrictions) to cure such deficiency and, if necessary, to obtain the approval
by its shareholders therefor, including the authorization of such additional
number of shares of Common Stock as may be required to issue such shares in
excess of the number so reserved (either in the aggregate or as to the
Debenture) or in excess of such limitation, as the case may be.
8. No Impairment. The Company shall not intentionally take any
action which would impair the contractual rights and privileges of the Debenture
set forth herein or of the Holder thereof.
9. Limitations on Holder's Obligation to Convert. Notwithstanding
anything to the contrary contained herein, no Holder shall be required to
convert any part of this Debenture in excess of the portion then convertible
into that number of shares of Common Stock specified in the Holder's
representation to the Company that, after giving effect to the shares of the
Company's Common Stock to be issued pursuant to such Conversion Notice, the
total number of shares of Common Stock
-5-
<PAGE> 6
deemed beneficially owned by the Holder, together with all shares of the
Company's Common Stock deemed beneficially owned by the Holder's "affiliates" as
defined in Rule 144 of the Act, would exceed 9.9% of the total issued and
outstanding shares of the Company's Common Stock.
10. Obligations Absolute. No provision of this Debenture, other
than conversion as provided herein, shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the manner,
herein prescribed.
11. Waivers of Demand, Etc. The Company hereby expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of intent to accelerate, prior notice of
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payments of all
sums owing and to be owing hereon, regardless of and without any notice (except
as required by law), diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
12. Replacement Debenture. In the event that the Holder notifies
the Company that this Debenture has been lost, stolen or destroyed, a
replacement Debenture identical in all respects to the original Debenture
(except for registration number and Outstanding Amount, if different than that
shown on the original Debenture) shall be issued to the Holder, provided that
the Holder executes and delivers to the Company an agreement reasonably
satisfactory to the Company to indemnity the Company from any loss incurred by
it in connection with the Debenture and provided that the Company is provided a
form of Debenture for such replacement purposes.
13. Payment of Expenses. The Company agrees to pay all debts and
expenses, including reasonable attorneys' fees and expenses, which may be
incurred by the Holder in enforcing the provisions of this Debenture and/or
collecting any amount due under this Debenture.
14. Defaults. If one or more of the following events (hereinafter
called "Events of Default") shall occur:
(a) The Company shall fail to perform or observe any covenant
or agreement under this Debenture or any other material obligation of the
Company to the Holder, and such failure shall continue uncured for a period of
ten (10) business days after notice from the Holder of such failure, or the
Company shall fail to make any payments upon redemption of this Debenture or
fail to issue shares of Common Stock upon conversion of this Debenture; or
(b) The Company shall (i) make a general assignment for the
benefit of creditors or commence proceedings for its dissolution; or (ii) apply
for or consent to the appointment of a trustee, liquidator or receiver for it or
for a substantial part of its property or business; or
(c) A trustee, liquidator or receiver shall be appointed for
the Company or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or
-6-
<PAGE> 7
(d) Any governmental agency or any court of competent
jurisdiction shall assume custody or control of the whole or any substantial
portion of the properties or assets of the Company and shall not be dismissed
within sixty (60) days thereafter, or
(e) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings, or relief under any bankruptcy law or any law
for the relief of debt shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution, or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit to any material
allegations of, or default in answering a petition filed in, any such
proceeding;
then, or at any time thereafter prior to the date on which all continuing Events
of Default have been cured, and in each and every such case, unless such Event
of Default shall have been waived in writing by the Holder (which waiver shall
not be deemed to be a waiver of any subsequent default) at the option of the
Holder and in the Holder's sole discretion, the Holder may, by notice to the
Company declare this Debenture immediately due and payable, and the Holder may
immediately, and without expiration of any period of grace, enforce any and all
of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law. In such event, the Debenture shall be redeemed at a
redemption price in cash equal to the Outstanding Amount.
15. Savings Clause. In case any provision of this Debenture is
held by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
16. Entire Agreement. This Debenture and the agreements referred
to in this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof. Neither
this Debenture nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and the
Holder.
17. Assignment, Etc. The Holder may, transfer or assign this
Debenture or any interest herein (but in no event in an amount less than $50,000
in Outstanding Amount or, if less than $50,000, the total Outstanding Amount
hereof) and may mortgage, encumber or transfer any of its rights or interest in
and to this Debenture or any part hereof, and each assignee, transferee and
mortgagee (which may include any affiliate of the Holder) shall have the right
to so transfer or assign its interest; provided, however, that prior to any
transfer occurring before a registration statement contemplated by Section 21
hereof becomes effective, Holder will furnish the Company with an opinion of
counsel to the effect that such assignment, transfer, mortgage or other
encumbrance is exempt from the registration requirements under the Securities
Act and without limiting the generality of the foregoing will not violate, and
will not cause the Company to be in violation of Rule 152 promulgated under the
Securities Act. Each such assignee, transferee and mortgagee shall have all of
the rights and obligations of the Holder under this Debenture. The Company
agrees that, subject
-7-
<PAGE> 8
to the foregoing, after receipt by the Company of written notice of assignment
from the Holder or from the Holders' assignee, all principal, interest, and
other amounts which are then due and thereafter become due under this Debenture
shall be paid to such assignee at the place of payment designated in such
notice. This Debenture shall be binding upon the Company and its successors and
shall inure to the benefit of the Holder and its successors and assigns.
18. No Waiver. No failure on the part of the Holder to exercise,
and no delay in exercising, any right, remedy or power hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise by the Holder of
any right, remedy or power hereunder preclude any other or future exercise of
any other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
19. Miscellaneous. Unless otherwise provided herein, any notice or
other communication to a party hereunder shall be deemed to have been duly given
if personally delivered or sent by registered or certified mail, return receipt
requested, postage prepaid with a copy in each case sent on the same day to the
party by facsimile, Federal Express or other such expedited means to said party
at its address set forth herein or such other address as either may designate
for itself in such notice to the other and communications shall be deemed to
have been received when delivered personally or, if sent by mail or Federal
Express, when actually received by the party to whom it is addressed. Copies of
all notices to the Company shall be sent to:
DynaGen, Inc.
840 Memorial Drive
Cambridge, MA 02139
Attention: President
Telephone: (617) 491-2527
Telecopy: (617) 354-3902
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: David A. Broadwin, Esq.
Telephone: (617) 832-1259
Telecopy: (617) 832-7000
-8-
<PAGE> 9
If to the Investor, to:
Dominion Capital Fund
c/o Citco Asset Management
Bahamas Financial Center
Shirley and Charlotte Streets
Nassau, Bahamas
Attention: Stephen Hicks
Whenever the sense of this Debenture requires, words in the singular shall be
deemed to include the plural and words in the plural shall be deemed to include
the singular. Section headings are for convenience only and shall not affect the
meaning of this document.
20. Choice of Law and Venue: Waiver of Jury Trial. THIS DEBENTURE
SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW THEREOF. The parties hereby (i)
irrevocably submit to the exclusive jurisdiction of the United States District
Court for the Southern District of New York for the purposes of any suit, action
or proceeding arising out of or relating to this Debenture and (ii) waive, and
agree not to assert in any such suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of such court, that the suit, action
or proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. The Company consents to process being served
in any such suit, action or proceeding by mailing a copy thereof to the Company
at the address in effect for notices to it under this Debenture and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 20 shall affect or limit any right to serve
process in any other manner permitted by law.
21. Registration. The Company shall, as soon as practicable after
receiving a request in writing from the Holder pursuant to this Section 21 but
in no event more than 30 days following such receipt, file with the SEC a
Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of registration statement as is then available to effect a
registration of the shares issuable hereunder), and shall thereafter use its
best efforts to cause such registration statement to become effective. If such
registration statement has not been declared effective by the 90th day following
the notice referred to in this Section 21, then the Company shall pay to the
Holder an amount equal to 21/2 percent of the then outstanding principal amount
of this Debenture for each month from such 90th day until the registration
statement is declared effective by the SEC, provided, that such payment shall be
prorated for periods of less than one month. The shares issuable hereunder shall
also be entitled to "piggy-back" registration on the next registration statement
on Form S-3 filed by the Company after the date hereof.
22. Late Delivery. The Company understands that a delay in the
issuance of the shares of Common Stock issuable upon conversion of this
Debenture beyond the Delivery Date could result in economic loss to the Holder.
As compensation to the Holder for such loss, the Company agrees to pay late
payments to the Holder for late issuance of such shares in accordance with the
following
-9-
<PAGE> 10
schedule (where "No. Business Days Late" is defined as the number of business
days beyond five (5) business days from the Delivery Date:
<TABLE>
<CAPTION>
Late Payment for Each $10,000 of Outstanding
No. Business Days Late Principal Amount Being Converted
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
Greater Than 10 $1,000 +$200 for each
Business Day Late beyond
10 days
</TABLE>
The Company shall pay any payments incurred under this Section 22 in immediately
available funds upon demand. Nothing herein shall limit the Holder's right to
pursue actual damages for the Company's failure to issue and deliver Common
Stock to the Holder. Furthermore, in addition to any other remedies which may be
available to the Holder, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock within five business days after
the Conversion Date, the Holder will be entitled to revoke the relevant
Conversion Notice by delivering a notice to such effect to the Company whereupon
the Company and the Holder shall each be restored to their respective positions
immediately prior to delivery of such Conversion Notice (and in such event, the
late payments described above shall not be due and payable).
* * *
-10-
<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated as of: March 31, 1998
DYNAGEN, INC.
By: /s/ Dhananjay G. Wadekar
Name: Dhananjay G. Wadekar
Title:
The Holder agrees to be bound by all the provisions of this Debenture
applicable to it.
DOMINION CAPITAL FUND LTD.
By: /s/ Stephen Hicks
Name:
Title:
-11-
<PAGE> 12
EXHIBIT A
NOTICE OF CONVERSION
To: DynaGen, Inc.
The undersigned, the holder of the within Debenture, hereby irrevocably
elects to convert this Debenture for the following principal amount, together
with interest accrued thereon up to the date hereof, for the number of shares of
Common Stock into which such aggregate amount is convertible as of the
Conversion Date pursuant to Section 4(b) of the Debenture.
PRINCIPAL AMOUNT: $______________________;
The undersigned requests that the certificate for such shares of Common
Stock be issued in the name of, and delivered to the holder at the address
specified below.
Dated:__________________
By:________________________________
Name:______________________________
Title:_____________________________
(Signature must conform to name of holder as specified
on the face of the Debenture)
Address:
__________________________________
__________________________________
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 440,643 764,540
<SECURITIES> 0 2,101,626
<RECEIVABLES> 4,072,016 267,279
<ALLOWANCES> 47,350 0
<INVENTORY> 8,456,605 765,229
<CURRENT-ASSETS> 13,548,682 4,336,298
<PP&E> 2,868,243 1,127,520
<DEPRECIATION> 1,053,431 370,884
<TOTAL-ASSETS> 28,976,188 5,584,049
<CURRENT-LIABILITIES> 24,611,166 1,366,702
<BONDS> 0 0
0 0
547 0
<COMMON> 146,680 301,142
<OTHER-SE> 3,025,583 4,217,347
<TOTAL-LIABILITY-AND-EQUITY> 28,976,188 5,584,049
<SALES> 6,961,625 457,670
<TOTAL-REVENUES> 6,691,625 457,670
<CGS> 5,558,562 453,545
<TOTAL-COSTS> 8,252,096 2,415,887
<OTHER-EXPENSES> 67,025 9186
<LOSS-PROVISION> 13,082 0
<INTEREST-EXPENSE> 374,572 13,539
<INCOME-PRETAX> (1,679,062) (1,888,612)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,679,062) (1,888,612)
<EPS-PRIMARY> (0.24) (0.63)
<EPS-DILUTED> (0.24) (0.63)
</TABLE>
