As filed with the Securities and Exchange Commission on November 18, 1998
Registration No. 333-47077
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM S-3/A
AMENDMENT NO. 3 TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DYNAGEN, INC.
(Exact name of Registrant as Specified in its Charter)
-----------------------------
DELAWARE 04-3029787
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Riverside Technology Center
840 Memorial Drive, 4th Floor
Cambridge, Massachusetts 02139
(617) 491-2527
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)
C. ROBERT CUSICK, President
DynaGen, Inc.
Riverside Technology Center
840 Memorial Drive, 4th Floor
Cambridge, Massachusetts 02139
(617) 491-2527
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
David A. Broadwin, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
(617) 832-1000
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
<PAGE>
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ___________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ___________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following. [ ]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
In accordance with Rule 416 under the Securities Act, this Registration
Statement also covers such indeterminate number of additional shares of the
Registrant's Common Stock, $.01 par value, as may become issuable upon
conversion of shares of the Registrant's Series C Convertible Preferred Stock,
$.01 par value per share (the "Series C Stock"), to prevent dilution resulting
from stock splits, stock dividends or similar transactions but not any
additional shares as may become issuable because of decreases in the conversion
price of the Series C Stock.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- - ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Title of Proposed Maximum Proposed Maximum
Shares Amount Offering Price Aggregate Offering
to be to be per Share Price Amount of
Registered Registered Registration Fee
- - ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value 7,243,568 shares $0.10 (1) $724,357 $ 213.69 (2)
- - ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
</TABLE>
(1) The price of $.10 per share, which is the average of the high and low
prices reported on the OTC Bulletin Board on November 16, 1998,
is set forth solely for purposes of calculating the filing fee
pursuant to Rule 457(c).
(2) $1,330.08 previously paid by wire transfer on February 6, 1998 and
August 26, 1998.
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PROSPECTUS
----------
DYNAGEN, INC.
7,243,568 Shares of Common Stock
($.01 par value)
All of the shares of common stock, par value $.01 per share ("Common
Stock"), of DynaGen, Inc. ("DynaGen" or the "Company") offered hereby (the
"Shares") will be sold from time to time by a stockholder of the Company (the
"Selling Stockholder"). The Shares consist of shares of Common Stock issuable
upon the conversion of the Company's Series C Convertible Preferred Stock, $.01
par value per share (the "Series C Stock").
In accordance with Rule 416, the registration statement of which this
Prospectus forms a part also covers that indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Series C
Stock to prevent dilution resulting from stock splits, stock dividends or
similar transactions, but not any additional shares as may become issuable
because of decreases in the converison price of the Series C Stock.
The Company will not receive any of the proceeds from the sale of the
Shares offered hereby. All brokerage commissions and other similar expenses
incurred by the Selling Stockholder will be borne by the Selling Stockholder.
Other expenses of the offering, estimated at $50,000, will be borne by the
Company.
SERIES C PREFERRED STOCK
The Series C Preferred Stock ranks on liquidation junior to the Series A
Preferred Stock and on parity with the Series B Preferred Stock. The
shares of Series C Preferred Stock carry a stated dividend of $7.00 per share
per annum, accruing cumulatively from the date of issuance of such shares to the
date on which the Liquidation Value of such shares is paid or such shares are
converted. A description of the rights, preferences and limitations of the
Series C Stock is set forth under the heading "Description of Capital Stock" in
this Prospectus.
The number of shares of Common Stock issuable upon conversion of Series C
is dependent upon the market price of the Common Stock. The Series C Preferred
Stock may be converted into Common Stock at a conversion price equal to 74% of
the average closing bid price of the Common Stock for the five trading days
prior to the date of conversion. Therefore, the conversion ratio will change if
the trading price of the Common Stock changes. Any conversion of Series C
Preferred Stock into Common Stock would be dilutive to the existing holders of
Common Stock. Decreases in the trading price of the Common Stock will cause the
number of shares issuable upon conversion of each share of Series C Stock to be
greater. However, no such additional shares are being registered in the
registration statement of which this Prospectus forms a part. See "Special
Considerations -- Adverse Consequences Associated With The Obligation To Issue A
Substantial Number of Shares Of Common Stock Upon Conversion Of Convertible
Securities" and "Risk Factors -- Adverse Consequences Associated With The
Obligation To Issue Substantial Shares Of Common Stock Upon Conversion Of
Convertible Securities." As of November 16, 1998 the outstanding shares of
Series C Preferred Stock were convertible into approximately 7,243,568 shares of
Common Stock.
Each holder of Series C Preferred Stock is entitled to vote
on all matters and is entitled to that number of votes equal to the largest
number of whole shares of Common Stock into which such holder's shares of Series
C Preferred Stock could then be converted. The Company's Restated
Certificate of Incorporation provides that, except as otherwise expressly
required by law, the holders of shares of Preferred Stock with voting rights
vote together with holders of Common Stock as a single class on all matters
submitted to the stockholders of the Corporation. See "Description of Capital
Stock."
The sale of the Shares by the Selling Stockholder may be effected from
time to time in one or more transactions (which may involve block transactions)
on the Boston Stock Exchange, the OTC Bulletin Board or in the over-the-counter
market, in negotiated transactions or by a combination of such methods of sale,
at fixed prices, at market prices prevailing at the time of the sale, at prices
related to the prevailing market prices or at negotiated prices. The Selling
Stockholder may effect such transactions with or through one or more
broker-dealers, which may act as agent or principal. The Selling Stockholder
and/or any broker-dealer effecting the sales may be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act, and any
commissions received by the broker-dealer and any profit on the resale of shares
as principal may be deemed to be underwriting discounts and commissions under
the Securities Act. Additionally, the Selling Stockholder may pledge or make
gifts of the Shares, and the Shares may also be sold by the pledgees or
transferees. In the event of such a transfer, the Company will amend the
Registration Statement of which this Prospectus forms a part, or will provide a
prospectus supplement, as appropriate, identifying such transferees as Selling
Stockholders. The Shares may also be transferred pursuant to Rule 144 under the
Securities Act, whether or not the Registration Statement of which this
Prospectus forms a part is effective at the time of any such transfer. The
Company has agreed to indemnify the Selling Stockholder against certain
liabilities, including certain liabilities under the Securities Act, and to the
extent any indemnification by an indemnifying party is prohibited or limited by
law, the Company has agreed to make the maximum contribution with respect to any
amounts for
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which it would otherwise be liable under such indemnification provision to the
fullest extent permitted by law. See "Plan of Distribution."
As of November 9, 1998, the authorized capital stock of the Company
consisted of (i) 75,000,000 shares of Common Stock, of which 27,500,449 shares
were issued and outstanding, and (ii) 10,000,000 shares of preferred stock, $.01
par value per share, of which (A) 50,000 shares have been designated Series A
Stock, of which 50,000 shares were issued and 1,570 outstanding, (B) 12,515
shares have been designated as Series B Stock, of which 12,515 shares were
issued and 7,500 were outstanding, (C) 7,500 shares have been designated Series
C Preferred Stock $.01 par value per share, ("Series C Stock") all of which were
issued and of which 5,638 were outstanding, (D) 60,000 shares have been
designated as Series D Preferred Stock $.01 par value per share, ("Series D
Stock") of which 15,000 were issued and 5,000 were outstanding, (E) 10,500
shares have been designated as Series E Preferred Stock, $.01 par value per
share ("Series E Stock"), all of which were issued and outstanding, (F) 5,000
shares have been designated as Series F Preferred Stock, $.01 par value per
share ("Series F Stock"), all of which were issued and outstanding. (G) 10,000
shares have been designated as Series G Preferred Stock, $.01 par value per
share ("Series G Stock"), all of which were issued and outstanding, and (H)
20,000 shares have been designated as Series H Preferred Stock, $.01 par value
per share, of which 19,000 were issued and outstanding. As of such date, based
on the market price of Common Stock of approximately $.10 the Company was
obligated to issue approximately 65,000,000 shares of Common Stock upon exercise
of outstanding options, rights, warrants, convertible preferred stock and
convertible notes.
The Common Stock is currently traded on the Boston Stock Exchange under
the symbol "DYG" and on the OTC Bulletin Board under the symbol "DYGN." On
November 16, 1998, the closing bid price of the Common Stock on the OTC Bulletin
Board was approximately $ .10 per share.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
SUBSTANTIAL DILUTION TO THE PUBLIC INVESTOR. SEE "RISK FACTORS" AND "DILUTION."
----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------------------
The date of this Prospectus is November 18, 1998.
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SPECIAL CONSIDERATIONS
During the year ended December 31, 1997, DynaGen, Inc. ("DynaGen" or
the "Company") experienced a substantial decrease in the Company's stock price
and market capitalization, continued losses from operations including an
unexpected loss at its Superior Pharmaceutical Company subsidiary and
substantial and continuing dilution to existing stockholders due to the
below-market conversion features of convertible securities sold by the Company.
During the nine months ended September 30, 1998, the Company experienced
continued losses from operations and continued substantial dilution to existing
stockholders. The following special considerations should be carefully noted by
the reader:
Financial Condition of the Company
For the year ended December 31, 1997, the Company incurred net losses
of approximately $12,241,278. For the nine months ended September 30, 1998, the
Company incurred net losses of approximately $6,975,561. As of September 30,
1998, the Company had approximately $205,000 in cash and cash equivalents and a
net worth of $2,598,793. The Company's current liabilities, as of such date
aggregated approximately $22,160,139. The Company expects its operating cash
needs for the next twelve months to be approximately $6,000,000. The Company
does not presently have adequate cash from operations to meet these needs. In
order to meet its needs for cash to fund its operations, the Company must obtain
additional financing and renegotiate the terms of its current arrangements with
creditors. The Company is presently in default under a number of its
arrangements, agreements and instruments with creditors, with the result that
the Company's obligations under such agreements and instruments may be
accelerated. 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 "Risk Factors
- - -- Financial Condition."
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 covenant obligations which are in default, and a liability of
approximately $4,200,000 to the selling stockholders of Superior Pharmaceutical
Company (Superior). This payment was to have been made in September 1998; the
Company and the selling stockholders are continuing to cooperate in seeking
necessary financing to conclude this transaction. The ability of the Company
to use cash generated by its subsidiaries, Superior and Generic Distributors,
Incorporated (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 "Risk Factors -- Ability to Continue as a Going
Concern".
COMPANY'S COMMON STOCK HAS BEEN DELISTED FROM NASDAQ STOCK MARKET
On October 6, 1998, the Company received a notice from the Nasdaq Stock
Market, Inc. (Nasdaq) that it was delisted from the Nasdaq SmallCap Market as of
the close of trading on October 6, because the Company did not meet Nasdaq's
requirements for continued listing.
The Company anticipates that it will continue to trade on the Boston
Stock Exchange and will 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.
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 provided that the Company would also be
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 had not
had an average closing bid price of at least $30.00 per share for the 10
previous trading days. The merger agreement provided further that any difference
between the value of the stock issued and the $5,000,000 guaranteed value was to
be paid in cash. The Common Stock traded at approximately $0.50 per share as of
June 18, 1998, and the Company therefore became obligated to pay approximately
$4,000,000 in cash to the former stockholders of Superior.
On July 31, 1998, the Company entered into a contingent settlement
agreement with the former stockholders of Superior which provides for an
overall reduction in purchase price of $4,900,000 through waiver of any
additional stock or cash payment. This agreement also provides for, and is
contingent upon, payment by DynaGen of $4,200,000, which represents the
remaining amount due on the original selling shareholder notes. The $4,200,000
was originally to have been paid by September 30, 1998. The Company and the
former stockholders are continuing to cooperate in seeking the necessary
financing to conclude this transaction. There can be no assurance that the
Company will be able to obtain financing to meet the obligations to pay the
selling shareholders. The Company'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 technology companies, including those of
the Company, has been highly volatile. The market price of the Company's Common
Stock fluctuated between $70.00 and $1.25 from January 1, 1993 to December 31,
1997 and was approximately $0.10 on November 16, 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 options,
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 convertible securities 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 convertible securities 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 or convert them. In addition, should a significant
number of these securities be exercised or converted, the resulting increase in
the amount of the Common Stock in the public market could have a substantial
dilutive effect on the Company's outstanding Common Stock.
AVAILABLE INFORMATION
DynaGen, Inc., a Delaware corporation, is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy and
information statements and other information filed by the Company with the
Commission pursuant to the informational requirements of the Exchange Act may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Seven World
Trade Center, Suite 1300, New York, New York 10048; and 500 West Madison Avenue,
Suite 1400, Chicago, Illinois 60661. Copies of such material may be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a Web
site (at http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding the Company. The Company's Common
Stock is listed on the Boston Stock Exchange and such material is also available
for inspection at the offices of the Boston Stock Exchange, One Boston Place,
Boston, Massachusetts 02109.
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-3 under the Act with respect to the securities
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus omits certain information contained in the Registration
Statement. For further information with respect to the Company and the
securities offered hereby, reference is hereby made to the Registration
Statement and to the exhibits and schedules filed therewith. Statements
contained in this Prospectus regarding the contents of any documents filed with,
or incorporated by reference in, the Registration Statement as exhibits are not
necessarily complete, and each such statement is qualified in all respects by
reference to the copy of the applicable documents filed with the Commission. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part
thereof may be obtained from such office upon payment of the prescribed fees.
INFORMATION INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company with the
Commission (File No. 1-11352) pursuant to the Exchange Act are incorporated by
reference in this Prospectus:
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(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as amended;
(2) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998;
(3) The Company's Proxy Statement for the March 4, 1998 Special
Meeting of Stockholders;
(4) The Company's Current Report on Form 8-K dated March 14, 1998;
(5) The Company's Current Report on Form 8-K dated June 18,1997 as
amended;
(6) The Company's Current Report on Form 8-K dated October 2, 1998;
(7) The "Description of Securities" contained in the Company's
Registration Statement on Form 8-A filed August 19, 1992 together with all
amendments and reports filed for the purpose of updating and description; and
(8) All other documents filed by the Company pursuant to Section 13(a)
or 15(d) of the Exchange Act since the end of the fiscal year covered by the
Annual Report referred to in (1) above.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of this Offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Copies of the documents incorporated herein by reference (excluding exhibits
unless such exhibits are specifically incorporated by reference into such
documents) may be obtained upon written or oral request without charge by
persons, including beneficial owners, to whom this Prospectus is delivered.
Request should be made to: Investor Relations, DynaGen, Inc., 840 Memorial
Drive, Cambridge Massachusetts 02139 (telephone: 617-491-2527).
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
more detailed information appearing elsewhere in this Prospectus or incorporated
herein by reference and the financial statements which are incorporated herein
by reference.
THE COMPANY DynaGen, Inc. (the "Company") develops, manufactures and
markets generic and specialty therapeutic
products for human health care. During 1996, DynaGen began
expanding its business focus from development and
licensing to building a diversified healthcare
company focused on the manufacture and distribution of
generic drug products and specialty pharmaceuticals.
RISK FACTORS The offering involves substantial risk, including the
Company's financial condition, doubt about the Company's
ability to continue as a going concern; the possible
delisting of the Company's Common Stock from the Nasdaq
SmallCap Market, the Company's history of losses and the
anticipation of future losses, the Company's future
capital needs and the uncertainty of additional funding,
uncertainties related to its current or future licensing
of the NicErase(R) technology,
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the integration of recently acquired companies, the risks
associated with managing a changing business and
implementing future acquisitions, limited manufacturing
and marketing capability and experience, competition,
dependence on patents and proprietary technology,
volatility of stock price and limited trading volume of
Common Stock. See "Risk Factors."
SECURITIES OFFERED 7,243,568 shares of the Company's common stock, par
value $.01 per share.
OFFERING PRICE All or part of the Shares offered hereby may be sold from
time to time in amounts and on terms to be determined by
the Selling Stockholder at the time of sale.
USE OF PROCEEDS The Company will receive no part of the proceeds from the
sale of any of the Shares by the Selling Stockholder. The
Company has received proceeds from the sale of the Series
C Stock, which proceeds were applied to working capital.
SELLING STOCKHOLDER The Shares being offered hereby are being offered for the
account of the Selling Stockholder specified under the
caption "Selling Stockholder."
STOCK MARKET SYMBOLS: Boston Stock Exchange
---------------------
Common Stock DYG
THE COMPANY
DynaGen, Inc. ("DynaGen" or the "Company") develops, manufactures and
distributes specialty and generic pharmaceuticals. From its inception in 1988
until 1996, the Company was focused primarily on new drug development and
licensing. However, during 1996 DynaGen began expanding its business focus to
building a generic pharmaceutical business while licensing its existing
portfolio of therapeutic and diagnostic products to larger pharmaceutical
companies for further development and commercialization in return for milestone
payments and royalties.
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In 1996, the Company changed its fiscal year end from June 30 to December
31. Accordingly, the Company began a new 12-month fiscal year on January 1,
1997. In March 1998, the Company completed a reverse split of its stock -- one
share for every ten shares outstanding.
Multisource Business
The U.S. multisource pharmaceutical market approximates $12 billion in
annual sales. This sector has grown due to a number of factors including the
large number of drugs coming off patent, the growing importance and impact of
managed care organizations which prefer lower cost generics to brand products,
and the increasing acceptance of generic drugs by physicians, pharmacists and
consumers. Generic drugs are the chemical and therapeutic equivalents of
brand-name drugs. They are required to meet the same governmental standards as
the brand-name drugs and must receive FDA approval prior to manufacture and
sale. Generic drugs may be manufactured and marketed only if relevant patents
(and any additional government-mandated market exclusivity periods) have
expired. These drugs are typically sold under their generic chemical names at
prices significantly below those of their brand-name equivalents.
To participate successfully in the multisource business, DynaGen intends to
compete with other generic companies through vertical integration of two key
elements of the multisource business, manufacturing and distribution. In August
1996, the Company acquired substantially all of the assets of Able Laboratories,
Inc. ("Able"), including its 46,000-square foot tablet and suppository
manufacturing facility. As part of this acquisition, the Company obtained rights
to eleven approved Abbreviated New Drug Applications ("ANDAs") as well as other
generic formulations. Since the acquisition, DynaGen has updated and expanded
Able's manufacturing capability, validated several of the acquired products,
retrained employees in quality assurance procedures, and successfully met FDA
requirements and guidelines to manufacture these products. The Company is
increasing sales of its current generic products through the expansion of its
distribution networks and by providing contract manufacturing services to
various pharmaceutical companies. The Company is currently marketing three of
the acquired ANDA products.
DynaGen filed its first ANDA for labetalol hydrochloride (brand names:
Normadyne(R)and Trandate(R)), a treatment for hypertension in January 1998. The
patent on the drug expired in August 1998. There is no assurance that the filing
will be approved by the FDA or if approved, that the Company will be able to
generate sales for this drug.
To complement the acquisition of Able, in June 1997 the Company acquired
Superior Pharmaceutical Company ("Superior") through a merger of Superior and a
wholly-owned subsidiary of DynaGen. Superior has its primary operations in
Cincinnati, Ohio where it employs approximately 65 people and has 37,300 square
feet of office, warehouse and distribution space.
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In 1997, Superior experienced a sharp decline in sales and earnings
compared to 1996. This was due to the loss of sales of methylphenidate (brand
name: Ritalin(R)) which was being manufactured and supplied to Superior under
the Superior label. This product resulted in sales of over $7.5 million for
Superior in 1996 and $5.1 million in 1997. The decline in sales and margins was
also due to the loss of key personnel at Superior immediately after the
acquisition, which resulted in a loss of business with certain federal and
corporate accounts. There was further erosion in margins as price pressure
continued in the generic industry. Recently, however, as marginal manufacturers
have either shut down operations or discontinued production, prices and margins
are improving. There can be no assurance, however, that these actions will
improve Superior's performance in the near future. In the past six months,
Superior has hired and trained additional sales staff, upgraded its systems and
instituted controls to improve margins. Superior is also aggressively bidding on
federal and state contracts and has won supply agreements with the governments
of the states of Florida, Ohio, Louisiana and Texas.
On March 4, 1998, the Company, through its wholly-owned subsidiary, Generic
Distributors Incorporated ("GDI"), acquired substantially all of the assets of
Generic Distributors Limited Partners, a distributor of generic drugs. GDI,
based in Monroe, LA, employs 23 people and operates out of an 11,000 sq. ft.
facility. DynaGen believes that GDI complements Superior by providing next-day
delivery service to the southern and southeastern United States. GDI's customer
base consists primarily of independent pharmacies in the states of Louisiana,
Texas, Arkansas, Alabama and Mississippi. Management believes that GDI has the
potential to grow its business through supply opportunities with institutional,
hospital and nursing home pharmacies. There can be no assurance that such
opportunities will arise, or that DynaGen will be able to exploit any such
opportunities profitably.
The purchase price of $2,350,000 for GDI was financed by a $1,200,000
five-year secured term loan from Fleet Bank and $1,150,000 in shares of Series
E Preferred Stock and Series F Preferred Stock. The preferred stock cannot be
converted into common stock until one year from the date of closing. After that,
the preferred stock can only be converted at a rate of $40,000 per week at the
prevailing market price. Fleet Bank has also provided $300,000 in a second
working capital line of credit.
Specialty Pharmaceutical Business
DynaGen's specialty pharmaceutical business strategy is to create a
business based on branded products and multi-drug combinations in convenient
packaging for specific indications and treatments. Physicians routinely
prescribe two or more separate drugs for the treatment of several common medical
problems. These drugs are separately prescribed and dispensed but are taken at
various times during the course of the day as directed by the physician. A major
problem in such multi-drug therapies is lack of compliance by the patient and
therefore less than desirable therapeutic efficacy. For this reason, the Company
initially intends to focus its efforts in the area of compliance enhancement
packaging. DynaGen has identified near-term opportunities in compliance
enhancement packaging in the areas of women's healthcare products. The Company
is developing convenience packaging which it believes will provide ease of
prescription, dispensing, storage and self-administration. Convenience packaging
also provides cost advantages to the consumer since there is only a single
"co-pay" instead of multiple co-payments.
The Company's proposed specialty pharmaceutical products are in an early
stage of development and therefore are subject to the risks of unsuccessful
development, marketing and commercialization. These proposed products will
require substantial further development which may include clinical testing, bio-
equivalency studies and regulatory approval, all at a substantial cost to the
Company. The use of specialty pharmaceuticals will require the acceptance of a
new way of prescribing medication and there can be no assurance a market will
develop for such products. Additional investment by the Company in
manufacturing, marketing and sales infrastructures will also be required prior
to commercialization. No assurance can be given that these development efforts
will be successfully completed or that the products, if introduced, will be
successfully marketed.
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Licensed Products
Since its inception, DynaGen's business consisted of developing proprietary
diagnostic and therapeutic products. These products included NicErase-SL, a
sublingual tablet containing the non-nicotine ingredient lobeline for smoking
cessation, and OrthoDyn(R), a bone-repair cement based on a family of
bioresorbable and biocompatible polymers derived from compounds naturally
occurring in the body. The Company has licensed these products for further
development, testing, manufacturing and marketing to other healthcare companies.
NicCheck I
The health care industry is shifting to a managed care approach which
integrates prevention, diagnostic, therapeutic and compliance technologies into
a panel of products for specific disease management. The Company has developed a
diagnostic product, NicCheck I, which may help in the determination of
compliance with smoking cessation programs.
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NicCheck I is an FDA-cleared simple colorometric test for the detection of
nicotine and/or its metabolites in urine. The test distinguishes between smokers
and nonsmokers with 97% accuracy and is also able to distinguish between high
and low consumers of nicotine. The NicCheck I result may be used to determine
the appropriate level of nicotine replacement therapy during smoking cessation
efforts. Smokers who are trying to quit may become more motivated by observing a
decrease in color intensity of the NicCheck I results as they reduce nicotine
consumption. NicCheck I may also prove to be a cost-effective means for
insurance companies to employ risk assessment/risk management strategies.
The Company maintains its principal executive offices at 840 Memorial
Drive, Cambridge, Massachusetts 02139, U.S.A., and its telephone number is
(617) 491-2527.
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RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of risk
and should not be purchased by persons who cannot afford the loss of their
entire investment. The following factors, in addition to the other information
discussed in this Prospectus, should be considered carefully in evaluating an
investment in the Company and its business.
FINANCIAL CONDITION. For the year ended December 31, 1997, the Company
incurred net losses of approximately $12,241,278. For the nine months ended
September 30, 1998, the Company incurred a net loss of $6,975,561. As of
September 30, 1998, the Company had approximately $205,000 in cash and cash
equivalents and a net worth of $2,598,793. The Company's current liabilities, as
of such date, aggregated approximately $22,160,139. The Company expects its cash
needs for the next twelve months to be approximately $6,000,000. The Company
does not presently have adequate cash from operations to meet these needs. In
order to meet its needs for cash to fund its operations, the Company must obtain
additional financing and renegotiate the terms of its current arrangements with
creditors. The Company is presently in default under a number of its
arrangements, agreements and instruments with creditors, with the result that
the Company's obligations under such agreements and instruments may be
accelerated. 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 "-- Contingent
Obligations with Respect to Superior Acquisition", "Special Considerations --
"Financial Condition".
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 at December
31, 1997. In addition, the Company has debt covenant obligations which are in
default, and a liability of approximately $4,200,000 to the selling stockholders
of Superior Pharmaceutical Company (Superior), due in September 1998. The
ability of the Company to use cash generated by its subsidiaries, Superior and
Generic Distributors, Incorporated (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 "-- Contingent Obligations with Respect to
Superior Acquisition" and "Special Considerations -- Company's Ability to
Continue As A Going Concern".
HISTORY OF LOSSES; ANTICIPATION OF FUTURE LOSSES. The Company has
incurred operating losses since its inception and had an accumulated deficit of
$44,517,105 as of September 30, 1998. The Company incurred a net loss of
$6,975,561 for the nine months ended September 30, 1998. The Company incurred a
net loss of $12,241,278 for the year ended December 31, 1997. The Company
incurred a net loss of $4,306,140 for the six months ended December 31, 1996, as
compared with a net loss of $1,809,816 for the same period ended December 31,
1995. The Company incurred a net loss of $6,082,494 for the fiscal year ended
June 30, 1996, compared with a net loss of $3,042,383 for the fiscal year ended
June 30, 1995. Such losses have resulted principally from expenses incurred in
research and development and from general and administrative costs associated
with the Company's development efforts. In addition, the Company's Able
subsidiary has incurred operating losses resulting primarily from insufficient
revenues. The continued development of the Company's products will require the
commitment of substantial resources to conduct further development and
preclinical and clinical trials, and to establish manufacturing, sales,
marketing, regulatory and administrative capabilities. The Company expects to
incur substantial operating losses over the next several years as its product
programs expand, various clinical trials commence and marketing efforts are
launched. The amount of net losses and the time required by the Company to reach
sustained profitability are highly uncertain, and to achieve profitability the
Company must, among other things, successfully complete development of its
products, obtain regulatory approvals, and establish manufacturing and marketing
capabilities by itself or with third parties. There is no assurance that the
Company will ever generate substantial revenues from its proprietary and generic
products or achieve profitability.
COMMON STOCK DELISTED FROM NASDAQ SMALLCAP MARKET. The Company received a
notice on October 6, 1998 from the Nasdaq Stock Market, Inc. ("Nasdaq") that it
does not meet the applicable listing requirements and that the Company's Common
Stock was being delisted as of the close of trading that day. The Company had
contested the initial notice by Nasdaq of the delisting action by requesting a
written hearing. Nasdaq notified the Company in a letter dated June 17, 1998,
that its request for an exception to the listing requirements had been denied
and that the Company's Common Stock was scheduled for delisting as of June 25,
1998. The Company obtained a stay of this delisting action by requesting an
oral hearing in accordance with Nasdaq's procedures. The oral hearing took
place on August 14, 1998, and Nasdaq notified the Company of its final decision
on October 6, 1998. The Company anticipates that it will continue to trade on
the Boston Stock Exchange and will 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. See "Special Considerations -- Company's Common Stock has been
Delisted From Nasdaq Stock Market."
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FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING; POSSIBILITY OF
BANKRUPTCY. It is anticipated that the Company will continue to expend
significant amounts of capital to fund its research and development, clinical
trials and generic pharmaceutical business and future acquisitions, if any. The
Company's available working capital is inadequate for completion of the
Company's development programs, and additional financing will be necessary for
the continued support of the Company's proposed products and operations,
including the establishment of manufacturing, marketing and distribution
capabilities for its proposed products and the continued operations of Able,
Superior and GDI. There can be no assurance that the Company will be able to
secure additional financing or that such financing will be available on
favorable terms. If the Company is unable to obtain such additional financing,
the Company's ability to maintain its current level of operations would be
materially and adversely affected and the Company may be obliged to seek
protection from its creditors under the bankruptcy laws.
SHARES OF COMMON STOCK MAY BE SUBJECT TO PENNY STOCK RULES. The Securities
Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure,
relating to the market for penny stocks, in connection with trades in any stock
defined as a penny stock. The Securities and Exchange Commission has adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
Such exceptions include any equity security listed on an exchange and any equity
security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for at least three
years, (ii) net tangible assets of at least $5,000,000, if such issuer has been
in continuous operation for less than three years, or (iii) average annual
revenue of at least $6,000,000 for the last three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith.
If the Company's Common Stock were delisted from the Boston Stock Exchange,
and the Company does not have at least $2,000,000 in net tangible assets or at
least $6,000,000 in average annual revenue for the last three years, trading in
the Company's securities would be covered by Rules 15g-1 through 15g-6 and 15g-9
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") for
non-Nasdaq and non-exchange listed securities. Under such rules, broker/dealers
who recommend such securities to persons other than established customers and
institutional accredited investors must make a special written suitability
determination for the purchaser and have received the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from these rules
if the market price of the Common Stock is at least $5.00 per share.
If the Company's Common Stock is delisted from the Boston Stock Exchange,
the Common Stock would become characterized as a penny stock and the market
liquidity for the Company's securities could be severely affected. In such an
event, the regulations on penny stocks could limit the ability of broker/dealers
to sell the Company's securities and thus the ability of purchasers of the
Company's securities to sell their securities in the secondary market.
RISKS ASSOCIATED WITH SUBSIDIARY OPERATIONS. The Company's results of
operations depend to a large degree upon the performance of its subsidiaries,
including its recently acquired subsidiaries Able, Superior and GDI. In its role
as a holding company with respect to these subsidiaries, the Company is
dependent on dividends or other intercompany transfers for funds from the
subsidiaries to meet the Company's obligations. Agreements between the Company
and certain of its creditors restrict the Company's ability to cause its
subsidiaries to make such dividends or other intercompany transfers. Claims of
creditors of the Company's subsidiaries, including trade creditors, will
generally have priority as to the assets of such subsidiaries over the claims of
the Company and the holders of the Company's indebtedness.
ADVERSE CONSEQUENCES ASSOCIATED WITH THE OBLIGATION TO ISSUE SUBSTANTIAL
SHARES OF COMMON STOCK UPON CONVERSION OF CONVERTIBLE SECURITIES. As of
September 30, 1998, the Company was obligated to issue approximately 35,576,828
shares of Common Stock for issuance upon the conversion or exercise of its
outstanding warrants, rights, convertible preferred stock and convertible notes
and 5,500,000 shares of Common Stock have been reserved for issuance pursuant
to options granted to employees, officers, directors and consultants. The price
which the Company may receive for the Common Stock issuable upon exercise of
options and warrants will, in all likelihood, be less than the market price of
the Common Stock at the time of such exercise. Consequently, for the life of
such options and warrants the holders thereof may have been given, at nominal
cost, the opportunity to profit from a rise in the market price of the Common
Stock.
The exercise of all of the aforementioned securities may also adversely
affect the terms under which the Company could obtain additional equity capital.
In all likelihood, the Company would be able to obtain additional equity capital
on terms more favorable to the Company at the time the holders of such
securities choose to exercise them. In addition, should a significant number of
these securities be exercised, the resulting increase in the amount of the
Common Stock in the public market could have a substantial dilutive effect on
the Company's outstanding Common Stock.
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 provided that the Company would also be 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 had not had an average closing bid
price of at least $30.00 per share for the 10 previous trading days. The merger
agreement provided further that any difference between the value of the stock
issued and the $5,000,000 guaranteed value was to be paid in cash. The Common
Stock traded at approximately $0.50 per share as of June 18, 1998, and the
Company therefore became obligated to pay approximately $4,000,000 in cash to
the former stockholders of Superior.
On July 31, 1998, the Company entered into a contingent settlement
agreement with the former stockholders of Superior which provides for an
overall reduction in purchase price of $4,900,000 through waiver of any
additional stock or cash payment. This agreement also provides for, and is
contingent upon, payment by DynaGen of $4,200,000, which represents the
remaining amount due on the original selling shareholder notes. The $4,200,000
was originally to have been paid on September 30, 1998. The Company and the
selling stockholders continue to cooperate in seeking the necessary financing
to conclude this transaction. There can be no assurance that the Company will
be able to obtain financing to meet the obligations to pay the selling
shareholders. The Company'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.
See "Special Considerations -- Obligations With Respect to Superior
Acquisition."
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INTEGRATION OF ACQUISITIONS. In August 1996, the Company acquired
substantially all of the assets of Able, in June 1997, the Company purchased all
of the outstanding shares of Superior and in March 1998, the Company acquired
substantially all of the assets of GDI. There can be no assurance that the
anticipated benefits from the acquisitions will be realized. Additionally, there
can be no assurance that the Company will be able to effectively market the
existing Able products, that it will obtain FDA approval to market additional
generic drugs or that it will be successful in managing the combined operations.
The integration of operations of the Company's subsidiaries requires substantial
attention from management, many of whom have limited experience in integrating
acquisitions. The diversion of management's attention, the process of
integrating the businesses and any difficulties encountered in the transition
process could cause an interruption of business, and could have a material
adverse effect on the Company's operations and financial performance.
LOSS OF KEY EMPLOYEES. The Company and its subsidiaries have in the past
18 months experienced loss of key personnel due to layoffs and attrition. While
management believes that the remaining employees have adequately performed
routine tasks, it will be necessary to fill several of these positions in the
near term. There is no assurance that the Company will be able to attract and
retain qualified employees and that the remaining employees will continue to
perform these functions satisfactorily. The Company's inability to attract and
retain qualified employees may result in further decline in the Company's
business and its financial condition.
RISKS ASSOCIATED WITH MANAGING A CHANGING BUSINESS. The Company has begun
to expand its business focus from being a development and licensing company to
building a diversified healthcare company focused on the manufacture and
distribution of generic drug products as well as the continued development of
therapeutic and diagnostic products. In order to achieve this expansion, the
Company must undergo substantial changes in its operations, which may
significantly strain the Company's limited administrative, operational and
financial resources. The ability of the Company to achieve its business
objectives will depend in large part on its ability to build and expand its
manufacturing operations and sales and marketing capabilities, to generally
expand its operational capabilities and its financial and management information
systems, to develop the management skills of its managers and supervisors and to
train, motivate and manage both its existing employees and the additional
employees that will be required if the Company is to expand its business. There
can be no assurance that the Company will succeed in developing all or any of
these capabilities, and any failure to do so would have a material adverse
effect on the Company's business, financial condition and results of operations.
LIMITED MANUFACTURING CAPABILITY AND EXPERIENCE. The Company's
NicCheck(R) product is currently made by licensed manufacturer. The Company
intends to enter into licenses, joint venture and similar collaborative
arrangements with third parties for the manufacture of other proprietary
products and proposed products. There are no other such agreements and there can
be no assurance that the Company will be successful in securing manufacturing
agreements for its products or that such agreements will prove to be on terms
favorable to the Company. In addition, the Company's dependence upon third
parties for the manufacture of its products and proposed products could have an
adverse effect on the Company's profitability and its ability to deliver its
proposed products on a timely and competitive basis. To the extent that the
Company attempts to manufacture any of its products, there can be no assurance
that the Company will be able to attract and retain qualified manufacturing
personnel, or build or rent manufacturing facilities.
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The Company's generic therapeutic products are manufactured at its Able
Laboratories facility in South Plainfield, New Jersey. In order to maintain
compliance with FDA Good Manufacturing Practices ("GMP") standards, the Company
will have to make significant investments in its infrastructure and plant
facility. The Company will need to raise capital to finance these investments
and there can be no assurance that the Company will be able to obtain such
financing or that such financing will be available on favorable terms. There can
be no assurance that such capital expenditures and overhead costs will not have
a material adverse effect upon the Company's ability to achieve profitability.
There can be no assurance that the Company will retain the key employees it
acquired in the Able acquisition.
LIMITED COMMERCIALIZATION OF PROPRIETARY PRODUCTS. The Company has
commercially introduced and is currently marketing through distributors only
three of its proprietary products, yielding limited revenues from the sale of
these products. Historically, substantially all of the Company's revenues had
been generated from research and development contracts and license fees. The
Company's ability to achieve profitability will depend on its ability to develop
and introduce commercially viable products, obtain regulatory approvals for
these products and either successfully manufacture, market and distribute such
products on its own or enter into collaborative agreements for product
manufacturing, marketing and distribution. Many of the Company's proposed
therapeutic and diagnostic products will require substantial further
development, preclinical and clinical testing, and investment by the Company or
third party licensees in manufacturing, marketing and sales infrastructures
prior to their commercialization. No assurance can be given that the Company's
development efforts will be successfully completed, that regulatory approvals
will be obtained, or that these products, once introduced, will be successfully
marketed.
POTENTIAL PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE. The testing,
marketing and sale of pharmaceutical products for human use entail inherent
risks. Liability might result from claims made directly by consumers or by
pharmaceutical companies or others selling the Company's products. The Company's
Superior and Able subsidiaries presently carry product liability insurance in
amounts that the Company believes to be adequate, but there can be no assurance
that such insurance will remain available at a reasonable cost or that any
insurance policy would offer coverage sufficient to meet any liability arising
as a result of a claim. The Company intends to seek to obtain insurance coverage
if and when its proposed products are commercialized but can give no assurance
that it will be able to obtain such insurance on reasonable terms or that, if
obtained, such insurance will be sufficient to protect the Company against such
potential liability or at a reasonable cost. The obligation to pay any product
liability claim or a recall of a product could have a material adverse affect on
the business, financial condition and future prospects of the Company.
LACK OF MARKETING EXPERIENCE. The Company currently does not plan to
market its proprietary products directly and does not have adequate resources or
expertise to develop a substantial marketing organization and internal sales
force for these products. Since the Company does not have the financial or other
resources to undertake extensive direct marketing activities, the Company
intends to enter into marketing arrangements with third parties, including
possible joint venture, license or distribution arrangements. While the Company
intends to license its products for manufacture and sale to established health
care or pharmaceutical companies, it has had very limited success in its efforts
to enter into such agreements to date. There can be no assurance that the
Company will be able to locate collaborative partners or that these strategic
alliances, if consummated, will prove successful.
With respect to the Company's generic therapeutic products, there can be
no assurance that present and potential customers of Able and Superior will
continue their recent buying patterns, and any significant delay or reduction in
orders could have a material adverse effect on the Company's near-term business
and results of operations.
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REGULATION BY GOVERNMENT AGENCIES. The Company's research, preclinical
development, clinical trials, manufacturing and marketing of its proposed
products are subject to extensive regulation by numerous governmental
authorities in the United States (including the FDA), and other equivalent
foreign regulatory authorities. The process of obtaining FDA and other required
regulatory approvals is lengthy and expensive. There can be no assurance that
the Company will be able to obtain the necessary approvals for clinical testing
or for the manufacturing or marketing of its proposed products. Further,
additional governmental regulation may be established which could prevent or
delay regulatory approval of the Company's products. The regulatory process may
delay for long periods, and ultimately prevent, marketing of new products or
impose costly procedures that would have a materially adverse effect on the
Company's business. Failure to comply with the applicable regulatory
requirements can, among other things, result in fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal prosecution.
The Company's success in the generic drug market depends, in part, on its
ability to obtain FDA approval of ANDAs for its new products, as well as its
ability to procure a continuous supply of raw materials and to validate the
manufacturing processes used to produce consistent test batches for FDA
approval. Sources for certain materials for the Company's products must be
approved by the FDA, and in many instances only one source has been approved. If
raw materials from a specified supplier were to become unavailable, the Company
would be required to file a supplement to its ANDA and revalidate the
manufacturing process using a new supplier's materials. This could cause a delay
of several months in the manufacture of the drug involved and the consequent
loss of potential revenue and market share. Additionally, there is often a time
lag, sometimes significant, between the receipt of ANDA approval and the actual
marketing of the approved product due to this validation process.
The Able Laboratories facility is subject to plant inspections by the FDA
to determine compliance with GMP standards. The Company could be subject to
fines and sanctions such as the suspension of manufacturing or the seizure of
drug products if it were found to be in non-compliance with GMP standards.
RAPID TECHNOLOGICAL ADVANCES AND COMPETITION. The therapeutic and
diagnostic markets in which the Company competes have undergone and can be
expected to continue to undergo rapid and significant technological advances.
There can be no assurance that the technological developments of others will not
render the Company's technology or products incorporating such technology either
uneconomical or obsolete. The Company competes with a number of specialized
biotechnology companies and major pharmaceutical companies. Most of these
companies have substantially greater financial, technical and human resources
and research and development staffs and facilities, as well as substantially
greater experience in conducting clinical trials, obtaining regulatory
approvals, and manufacturing and marketing products than does the Company. There
can be no assurance that the Company's products or proposed products will be
able to compete successfully.
In addition, with its newly acquired generic product line, the Company is
now competing in a new market with off-patent drug manufacturers, brand-name
pharmaceutical companies that manufacture off-patent drugs, the original
manufacturers of brand-name drugs and manufacturers of new drugs that may be
used for the same indications as the Company's products. There is no assurance
that the Company will compete successfully in this market. Revenues and gross
profit derived from generic pharmaceutical products tend to follow a pattern
based on regulatory and competitive factors unique to the generic pharmaceutical
industry. As patents for brand name products and related exclusivity periods
mandated by regulatory authorities expire, the first generic manufacturer to
receive regulatory approval for generic equivalents of such products is usually
able to achieve relatively high revenues and gross profit. As other generic
manufacturers receive regulatory approvals on competing products, prices and
revenues typically decline. Accordingly, the level of revenues and gross profit
attributable to generic products developed and manufactured by the Company is
dependent, in part, on its ability to develop and introduce new generic
products, the timing of regulatory approval of such products, and the number and
timing of regulatory approvals of competing products. In addition, competition
in the United States generic pharmaceutical market continues to intensify as the
pharmaceutical industry adjusts to increased pressures to contain health care
costs. Brand name companies are increasingly selling their products into the
generic market directly by acquiring or forming strategic alliances with generic
pharmaceutical companies. No regulatory approvals are required for a brand name
manufacturer to sell directly or through a third party to the generic market,
nor do such manufacturers face any other significant barriers to entry into such
market. These competitive factors may have a material adverse effect on the
Company's ability to sell its generic products.
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DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY. The Company owns certain
patents and has applied for other patents relating to its technology and
proposed products. No assurance can be given, however, whether pending patent
applications will be granted or whether any patents granted will be enforceable
or provide the Company with meaningful protection from competitors. Even if a
competitor were to infringe the Company's patents, the costs of enforcing its
patent rights may be substantial or even prohibitive. In addition, there can be
no assurance that the Company's proposed products will not infringe the patent
rights of others. The Company may be forced to expend substantial resources if
the Company is required to defend against any such infringement claims. The
Company also may desire or be required to obtain licenses from others in order
to further develop, produce and market commercially viable products effectively.
There can be no assurance that such licenses will be obtainable on commercially
reasonable terms, if at all, that the patents underlying such licenses will be
valid and enforceable or that the proprietary nature of the unpatented
technology underlying such licenses will remain proprietary. The Company also
relies on unpatented proprietary know-how and trade secrets, and employs various
methods including confidentiality agreements with employees, consultants,
manufacturing and marketing partners to protect its trade secrets and know-how.
However, such methods may not afford complete protection and there can be no
assurance that others will not independently develop such trade secrets and
know-how or obtain access thereto.
The manufacture and sale of certain products developed by the Company will
involve the use of processes, products or information, the rights to certain of
which are owned by others. Although the Company has obtained licenses with
regard to the use of certain such processes, products and information, there can
be no assurance that such licenses will not be terminated or expire during
critical periods, that the Company will be able to obtain licenses for other
rights which may be important to it, or, if obtained, that such licenses will be
obtained on commercially reasonable terms. If the Company is unable to obtain
such licenses, the Company may have to develop alternatives to avoid infringing
patents of others, potentially causing increased costs and delays in product
development and introduction, or precluding the Company from developing,
manufacturing or selling its proposed products. Additionally, there can be no
assurance that the patents underlying any licenses will be valid and
enforceable. To the extent any products developed by the Company are based on
licensed technology, royalty payments on the licenses will reduce the Company's
gross profit from such product sales and may render the sales of such products
uneconomical.
EARLY STAGE OF PRODUCT DEVELOPMENT. Several of the Company's proposed
products, including its specialty pharmaceuticals, are at an early stage of
development. The Company does not expect that its early stage products will be
available for a significant number of years, if at all. The early stage products
will require significant research and development, and potential products that
appear to be promising at early stages of development may not reach the market
for a number of reasons. Potential products may be found ineffective or cause
harmful side effects during preclinical testing or clinical trials, fail to
receive necessary regulatory approvals, be difficult to manufacture on a large
scale, be uneconomical to produce, fail to achieve market acceptance or be
precluded from commercialization by proprietary rights of third parties. There
can be no assurance that the Company's or its collaborative partners' product
development efforts will be successfully completed, that required regulatory
approvals will be obtained or that any products, if introduced, will be
successfully marketed or achieve customer acceptance.
UNCERTAINTY OF AVAILABILITY OF HEALTH CARE REIMBURSEMENTS. The ability of
the Company to maintain profitability in Superior's generic distribution
business or to commercialize its product candidates depends in part on the
extent to which reimbursement for the cost of such products will be available
from government health administration authorities, private health insurers and
other organizations. Third party payors are attempting to control costs by
limiting the level of reimbursement for medical products, including
pharmaceuticals, which may adversely effect the pricing of the Company's product
candidates. Moreover, health care reform has been, and may continue to be, an
area of national and state focus, which could result in the adoption of measures
which could adversely affect the pricing of pharmaceuticals or the amount of
reimbursement available from third party payors. There can be no assurance that
health care reimbursement laws or policies will not materially adversely affect
the Company's ability to sell its products profitably or prevent the Company
from realizing an appropriate return on its investment in product development.
17
<PAGE>
UNCERTAINTIES RELATED TO PRODUCT SUPPLIERS. Superior purchases its
products from several pharmaceutical manufacturers. If a manufacturer is unable
to supply a product or is unable to supply a product at a competitive price,
Superior may lose revenues or experience significantly reduced gross profit
margins. One or more of Superior's products could be subject to a manufacturer's
product recall due to manufacturing defects or other reasons. Such recalls would
result in lost revenues and additional costs to Superior. There can be no
assurance that Superior can maintain a continuous and uninterrupted supply of
products.
CUSTOMER CONCENTRATION; CONSOLIDATION OF DISTRIBUTION NETWORK. The
distribution network for pharmaceutical products has in recent years been
subject to increasing consolidation. As a result, a few large wholesale
distributors control a significant share of the market. In addition, the number
of independent drug stores and small chains has decreased as retail pharmacy
consolidation has occurred. Further consolidation among, or any financial
difficulties of, distributors or retailers could result in the combination or
elimination of warehouses, thereby stimulating product returns to Superior.
Consolidation or financial difficulties could cause customers to reduce their
inventory levels, or otherwise reduce purchases of Superior's products, which
could have a materially adverse effect on the Company's business, results of
operations and financial condition.
VOLATILITY OF STOCK PRICE. The market for securities of technology
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 $1.25 from
January 1, 1993 to December 31, 1997 and was approximately $.10 on
November 16, 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.
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<PAGE>
DILUTION. At September 30, 1998, the net tangible book value (deficit) of
the Company's Common Stock was ($14,781,664), or approximately ($0.56) per
share. Purchasers of the Company's Common Stock offered hereby will experience
immediate and substantial dilution. See "Dilution."
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<PAGE>
DILUTION
"Dilution" represents the difference between the assumed price to
public per share of Common Stock and the net tangible book value per share
immediately after the completion of this offering. "Net tangible book value
(deficit) per share" represents the amount of total tangible assets less total
liabilities and preferred stock at liquidation value, divided by the number of
shares of Common Stock outstanding.
As of September 30, 1998, the net tangible book value (deficit) of the
Company's Common Stock was $(14,781,664) or $(0.56) per share of Common Stock.
Assuming a price to the public of $.10 per share (based upon the last reported
sales price of the Common Stock on the OTC Bulletin Board at November 16, 1998,
there will be an immediate dilution per share of $.71 to new investors
purchasing the Shares offered hereby. The issuance of additional shares of
Common Stock due to decreases in the conversion price of Series C Stock would
increase the dilutitive effect of this offering. See "Risk Factors -- Adverse
Consequences Associated with the Obligation to Issue Substantial Shares of
Common Stock Upon Conversion of Convertible Securities."
The following table illustrates the dilution per share described above:
Assumed price to public per share........................... $0.10
Net tangible book value (deficit) per share at September 30, 1998,
as defined above....................................... $(0.56)
Dilution to new investors................................... $0.71
In August 1997, the Company issued the Series C Stock to the Selling
Stockholder for an aggregate purchase price of $750,000, as part of a private
placement transaction. Each share of Series C Stock is convertible into shares
of Common Stock at any time at the option of the Selling Stockholder holding
such share of Series C Stock, subject to certain limitations, at a discount on
the average of the closing bid price per share of the Company's Common Stock for
the five (5) consecutive trading days ending immediately prior to the date the
notice of conversion is received by the Company. The Company also issued to the
Selling Stockholder a warrant exercisable for an aggregate of 25,000 shares of
Common Stock at a purchase price per share of $7.4609.
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<PAGE>
At September 30, 1998, the Company had outstanding options to purchase
5,500,000 shares of Common Stock, at exercise prices ranging between $.01 and
$.05 per share. At September 30, 1998, the Company also had outstanding
warrants, rights, convertible preferred stock and a convertible note which have
exercise or conversion prices ranging between $.125 and $.50, which if exercised
would result in the issuance of 35,576,828 shares of Common Stock.
USE OF PROCEEDS
The Company will receive no part of the proceeds from the sale of any
of the Shares by the Selling Stockholders. The Company received proceeds from
the sale of the Series C Stock, which proceeds were applied to working capital.
21
<PAGE>
SELLING STOCKHOLDER
The following table sets forth information known to the Company as of
November 9, 1998 concerning the beneficial ownership of shares of Common Stock
by the Selling Stockholder as of the date of this Prospectus, the number of such
shares included for sale in this Prospectus by the Selling Stockholder and the
number of shares of Common Stock to be held by the Selling Stockholder after the
conclusion of this Offering, assuming the sale of all such Shares offered by
this Prospectus. The Selling Stockholder has not held any office or maintained
any material relationship with the Company or any of its predecessors or
affiliates over the past three years.
<TABLE>
<CAPTION>
Number of
Shares of
Number of Shares of Common Stock Number of Shares Percent of
Common Stock Owned to Owned Shares Owned
Names Prior to the Offering(1) be Sold(2) After Offering After Offering
----- --------------------- ------------ ---------------- --------------
<S> <C> <C> <C> <C>
The Endeavour Capital Fund S.A.(3) ( ) 7,243,568 9,442,353 21.4% (1)(4)
c/o Endeavour Management
14/14 Divrei Chaim Street
Jerusalem 94479
Israel
</TABLE>
- ----------------------
(1) Includes, pursuant to the rules of the Commission, shares of Common
Stock which as of November 9, 1998, the Selling Stockholder has a
right to acquire within 60 days upon conversion or exercise of
convertible securities held by the Selling Stockholder, without regard
to limitations on conversion imposed by the terms of the Series C
Stock. Total of 16,685,921 shares consists of 7,243,568 shares of
Common Stock issuable upon conversion Series C Stock, 5,882,353 shares
of Common Stock issuable upon conversion Series D Stock (none of which
are registered in this Prospectus), 3,285,000 shares issuable upon
conversion of a convertible debenture and approximately 275,000 shares
issuable upon the exercise of a warrant. Only shares of Common Stock
issuable upon conversion of Series C Stock are covered in the
registration statement of which this Prospectus forms a part. Shares of
Series C Stock and Series D Stock are convertible into Common Stock at
a discount on the average market price for the Common Stock for the
five consecutive trading days immediately preceding the date on which
the stock is converted. In addition, pursuant to the terms of the
Preferred Stock, the conversion rights of the holders of Preferred
Stock are limited in that the number of shares of Common Stock thereby
issuable, together with the number of shares of Common Stock then held
by such holder and its affiliates, may not exceed 4.9% of the then
outstanding Common Stock of the Company, as determined in accordance
with Section 13(d) of the Exchange Act. See "Description of Capital
Stock."
(2) The actual number of shares set forth represents an estimate of the
number of shares of Common Stock to be offered by the Selling
Stockholder. The actual number of shares of Common Stock offered
hereby, and included in the Registration Statement of which this
Prospectus is a part, includes such additional shares of Common Stock
as may be issued or issuable upon conversion of the Series C Stock by
reason of any stock split, stock dividend or similar transaction
involving the Common Stock, in order to prevent dilution, in accordance
with Rule 416 under the Securities Act, but not any additional shares
as may becom issuable because of decreases in the conversion price of
the Series C Stock.
(3) Mr. Shmuli Margulies, director of Endeavour, is the individual who has
voting and investment decision authority over this investment.
(4) Based on 27,500,449 shares of Common Stock issued and outstanding as of
November 9, 1998, and giving effect to the sale by the Selling
Stockholder of 7,243,568 shares of Common Stock hereunder.
PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Stockholder or its
pledgees, donees, transferees, or other successors in interest may be effected
in one or more transactions that may take place on the Boston Stock Exchange,
the OTC Bulletin Board, in the over-the-counter market, or in such other markets
on which the Company's securities may from time to time be trading, including
ordinary broker's transactions or through sales to one or more dealers for
resale of the Shares as principals, in privately negotiated
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<PAGE>
transactions, through the writing of options on the Shares (whether such options
are listed on an options exchange or otherwise) or by a combination of such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. If the Selling Stockholder effects such
transactions by selling the Shares through underwriters, dealers or agents, such
underwriters, dealers or agents may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Stockholder
and/or the purchasers of the Shares for whom they may act as agent. The Selling
Stockholder and any such underwriters, dealers or agents that participate in the
distribution of the Shares may be deemed to be underwriters, and any profit on
the sale of the Shares by them and any discounts, commissions or concessions
received by them may be deemed to be underwriting discounts and commissions
under the Securities Act. Shares may also be sold pursuant to Rule 144 under the
Securities Act. Brokers or dealers acting in connection with the sale of the
Shares may receive fees or commissions in connection therewith. The Company will
not receive any of the proceeds from the sale of the Shares by the Selling
Stockholder.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of shares of Common Stock may not
simultaneously engage in market making activities with respect to such shares of
Common Stock for a period of up to five business days prior to the commencement
of such distribution, subject to certain exceptions. In addition and without
limiting the foregoing, the Selling Stockholder and any other person
participating in the distribution of the Shares will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rule 10b-5 and Regulation M, which provisions may
limit the time of purchases and sales of any Shares by the Selling Stockholder
or any other such person. All of the foregoing may affect the marketability of
the Shares.
The Company has agreed with the Selling Stockholder to file the
Registration Statement of which this Prospectus is a part with the Commission,
and has agreed to keep the Registration Statement effective until August 21,
1999 or such earlier time as all of the Selling Stockholder's Shares have been
sold. The Company will pay all of the expenses incidental to the registration of
the Shares and certain other expenses related to the offering. The Company has
agreed to indemnify the Selling Stockholder against certain liabilities they may
incur in connection with the issuance and sale of the Shares, including
liabilities under the Securities Act. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the Company has agreed to
make the maximum contribution with respect to any amounts for which it would
otherwise be liable under such indemnification provision to the fullest extent
permitted by law.
In order to comply with certain states' securities laws, if applicable,
the Shares may be sold in such jurisdictions only through registered or licensed
brokers or dealers. In certain states, the Shares may not be sold unless the
Shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following descriptions of the Company's securities are qualified in
all respects by reference to the Company's Restated Certificate of Incorporation
and By-laws, copies of which are included as exhibits to the Registration
Statement of which this Prospectus forms a part.
The authorized capital stock of the Company consists of (i) 75,000,000
shares of common stock, $0.01 par value per share ("Common Stock"), and (ii)
10,000,000 shares of preferred stock, $.01 par value per share ("Preferred
Stock").
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in all
matters to be voted on by the shareholders. Holders of Common Stock vote as a
single class with holders of Preferred Stock. See "Preferred Stock." Subject to
the preferences that may be applicable to any Preferred Stock then outstanding,
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefor. The Company has never paid or declared a dividend on
its Common Stock. The Company currently intends to retain any future earnings to
finance operations and therefore does not anticipate paying any cash dividends
in the foreseeable future. In addition, the terms of the Company's credit
agreements with various lenders place certain restrictions on the Company's
ability to pay cash dividends on its Common Stock. In the event of liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of the Company's
liabilities and the liquidation preference, if any, of any then outstanding
shares of Preferred Stock. Holders of Common Stock have no preemptive rights and
no rights to convert their Common Stock into any other securities, and there are
no redemption or sinking fund provisions with respect to such shares. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be materially adversely affected by, the rights of the holders of shares
of any series of Preferred Stock which the Company may designate and issue in
the future. All outstanding shares of Common Stock are fully paid and
non-assessable. The shares of Common Stock offered by this Prospectus will, upon
conversion of the Series C Preferred Stock or Series D preferred Stock in
accordance with the terms of each or upon exercise of the warrants and payment
of the exercise price in connection therewith, will be fully paid and
non-assessable.
PREFERRED STOCK
The Board of Directors is authorized, subject to limitations
prescribed by Delaware law, to provide for the issuance of up to 10,000,000
shares of preferred stock, $0.01 par value per share, in one or more series, to
establish from time to time the number of shares to be included in each such
series, to fix the voting powers, designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, and to increase or decrease the number of shares of any
such series (but not below the number of shares of such series then outstanding)
without further vote or action by the stockholders. The Board of Directors is
authorized to issue Preferred Stock with voting, conversion and other rights and
preferences that could adversely affect the voting power or other rights of the
holders of Common Stock. As of September 28, 1998 the Board of Directors has
designated (a) 50,000 shares as Series A Convertible Preferred Stock ("Series A
Stock"), of which 50,000 have been issued and 1,570 were outstanding; (b) 12,515
shares as Series B Convertible Preferred Stock ("Series B Stock"), of which
12,515 shares have been issued and 7,500 were outstanding; (c) 7,500 shares as
Series Convertible C Preferred Stock ("Series C Stock"),of which 7,500 have been
issued and 6,500 were outstanding; (d) 60,000 shares as Series D Convertible
Preferred Stock ("Series D Stock"), of which 15,000 were issued and 5,000 were
outstanding; (e) 10,500 shares as Series E Convertible Preferred Stock ("Series
E Stock"), all of which were issued and outstanding; (f) 5,000 shares have been
designated as Series F Convertible Preferred Stock ("Series F Stock"), all of
which were issued and outstanding; and (g) 10,000 shares have been designated as
Series G Convertible Preferred Stock ("Series G Stock"), all of which were
issued and outstanding, and (H) 20,000 shares have been designated as Series H
Preferred Stock ("Series H Stock"), of which 19,000 were issued and outstanding.
With respect to the remaining 9,824,485 shares of authorized preferred
stock, the Board of Directors has the authority, without further action by the
stockholders, to issue from time to time shares of preferred stock with voting
rights and other rights and preferences that may be great than the rights of the
Common Stock. The Board of Directors, without stockholder approval, can from
time to time issue preferred stock with voting, conversion and other rights that
could adversely affect the voting rights and other rights of the holders of
Common Stock. Preferred stock could be issued quickly with terms intended to
delay or prevent a change in control of the Company without any further action
by the stockholders.
SERIES A STOCK
The rights, preferences and limitations of the Series A Stock are as
follows:
Conversion. Each holder of Series A Stock has the right to convert
during any five (5) trading day period up to twenty percent (20%) of the shares
of Series A Stock held by such holder into a number of shares of Common Stock
determined by multiplying the number of shares of Series A Stock to be converted
by a fraction, the numerator of which is the original issue price and the
denominator of which is 74% of the average of the closing bid price of the
Common Stock for the five (5) trading days immediately preceding conversion (the
"Series A Conversion Price"). On the date that is two (2) years from the
original issue date for each holder of Series A Stock all shares of the Series A
Preferred Stock then held by such holder shall, without any action on the part
of such holder, be automatically converted into the number of shares of Common
Stock determined by multiplying the number of shares of Series A Stock then held
by such holder by a fraction the numerator of which is the original issue price
and the denominator of which is the applicable Series A Conversion Price. Prior
to such mandatory conversion date, however, no holder of Series A Stock may
convert Series A Stock into shares of Common Stock to the extent that the number
of shares of Common Stock beneficially owned by such holder and its affiliates
immediately after such conversion would be more than 4.9% of the shares of
Common Stock then outstanding.
Dividends. Commencing on the date of issuance, a stated dividend (the
"Series A Stated Dividend") accrues quarterly in arrears at the rate of five
dollars ($5.00) per annum with respect to each issued share of Series A
Preferred Stock and shall be payable on the last trading day of each fiscal
quarter of the Company. Such Series A Stated Dividends are cumulative and are
payable upon conversion, whether or not earned or declared.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series A Stock, and subject to the liquidation rights and
preferences of any class or series of Preferred Stock designated by the Board of
Directors in the future to be senior to, or on a parity with the Series A Stock
with respect to liquidation preferences, the holders of each share of Series A
Preferred Stock will be entitled to be paid first out of the assets of the
Company available for distribution to holders of the Company's capital stock of
all classes, whether such assets are capital, surplus or earnings, an amount
equal to the original issue price per share of Series A Stock held by any
holder, plus the Series A Stated Dividend accruing to the Series A Stock (the
"Series A Liquidation Value"). If, upon liquidation, dissolution or winding up
of the Company, the assets of the Company available for distribution to its
stockholders are insufficient to pay the holders of the Series A Stock the full
amount to which they otherwise would be entitled, the holders of Series A Stock
shall share ratably in any distribution of available assets pro rata in
proportion to the respective liquidation preference amounts which would
otherwise be payable upon liquidation with respect to the outstanding shares of
the Series A Stock if all liquidation preference amounts with respect to such
shares were paid in full, based upon the aggregate Series A Liquidation Value
payable upon all shares of Series A Stock then outstanding.
Voting. Except as otherwise required by the General Corporation Law of
the State of Delaware, each holder of Series A Stock is entitled to vote on all
matters and is entitled to that number of votes equal to the largest number of
whole shares of Common Stock into which such holder's shares of Series A Stock
could be converted at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise required by law, the holders of shares of Series A Stock and
Common Stock shall vote together (or render written consents in lieu of a vote)
as a single class on all matters submitted to the stockholders of the Company.
Notwithstanding the foregoing, for so long as there are any shares of Series A
Stock outstanding, the Company may not amend its Certificate of Incorporation or
the Certificate of Designation of the Series A Stock without the approval, by
vote or written consent, of the holders of at least a majority of the then
outstanding shares of Series A Stock, voting together as a class, each share of
Series A Stock to be entitled to one vote in each instance, if such amendment
would adversely affect the rights of the holders of Series A Stock.
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<PAGE>
Redemption. The Series A Stock may not be redeemed by the Company.
SERIES B STOCK
The rights, preferences and limitations of the Series B Stock are as
follows:
Conversion. Each holder of Series B Stock has the right to convert
during any five (5) trading day period up to twenty percent (20%) of the shares
of Series B Stock held by such holder into a number of shares of Common Stock
determined by multiplying the number of shares of Series B Stock to be converted
by a fraction, the numerator of which is the original issue price and the
denominator of which is 75% of the average of the closing bid price of the
Common Stock for the five (5) trading days immediately preceding conversion (the
"Series B Conversion Price"). On the date that is two (2) years from the
original issue date for each holder of Series B Stock all shares of the Series B
Preferred Stock then held by such holder shall, without any action on the part
of such holder, be automatically converted into the number of shares of Common
Stock determined by multiplying the number of shares of Series B Stock then held
by such holder by a fraction the numerator of which is the original issue price
and the denominator of which is the applicable Series B Conversion Price. Prior
to such mandatory conversion date, however, no holder of Series B Stock may
convert Series B Stock into shares of Common Stock to the extent that the number
of shares of Common Stock beneficially owned by such holder and its affiliates
immediately after such conversion would be more than 4.9% of the shares of
Common Stock then outstanding.
Dividends. Commencing on the date of issuance, a stated dividend (the
"Series B Stated Dividend") accrues quarterly in arrears at the rate of seven
dollars ($7.00) per annum with respect to each issued share of Series B Stock
and shall be payable on the last trading day of each fiscal quarter of the
Company. Such Series B Stated Dividends are cumulative and are payable upon
conversion, whether or not earned or declared.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series B Stock, and subject to the liquidation rights and
preferences of the Series A Stock and any other class or series of preferred
stock designated by the Board of Directors to be senior to the Series B Stock
with respect to liquidation preferences, the holders of each share of Series B
Stock will be entitled to be paid first out of the assets of the Company
available for distribution to holders of the Company's capital stock of all
classes, whether such assets are capital, surplus or earnings, an amount equal
to the original price per share of Series B Stock held by any holder, plus all
Series B Stated Dividends that have become due but have not been paid, and all
accrued but not yet due dividends, to the date of final distribution (whether
earned or not) (the "Series B Liquidation Preference"). The Series B Stock ranks
on liquidation junior to the Series A Stock. If, upon liquidation, dissolution
or winding up of the Company, the assets of the Company, or proceeds of those
assets, available for distribution to the holders of the Series B Stock and of
the shares of all other classes or series that are on a parity as to
distributions on liquidation with the Series B Stock are not sufficient to pay
in full the preferential amount required to be distributed to the holders of the
Series B Stock and of all other classes or series that are on a
25
<PAGE>
parity as to distributions on liquidation with the Series B Stock, then the
assets, or the proceeds of those assets, that are available for distribution to
the holders of Series B Stock and of the shares of all other classes or series
that are on a parity as to distributions on liquidation with the Series B Stock
will be distributed to the holders of the Series B Stock and of the shares of
all other classes or series that are on a parity as to distributions on
liquidation with the Series B Stock ratably in accordance with the respective
amount of the Series B Liquidation Preferences of the shares held by each of
them. After payment of the full amount of the Series B Liquidation Preference
(including accumulated unpaid dividends and accrued dividends) and accumulated
and accrued dividends to which holders of Series B Stock are entitled, the
holders of Series B Stock will not be entitled to any further distribution of
assets of the Company. Neither a consolidation or merger of the Company with
another company, nor a sale or transfer of all or any part of the Company's
assets for cash or securities, will be considered a liquidation, dissolution, or
winding-up of the Company.
Voting. Except as otherwise required by the General Corporation Law of
the State of Delaware, each holder of Series B Stock is entitled to vote on all
matters and is entitled to that number of votes equal to the largest number of
whole shares of Common Stock into which such holder's shares of Series B Stock
could be converted at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise required by law, the holders of shares of Series B Stock and
Common Stock shall vote together (or render written consents in lieu of a vote)
as a single class on all matters submitted to the stockholders of the Company.
Notwithstanding the foregoing, for so long as there are any shares of Series B
Stock outstanding, the Company may not amend its Certificate of Incorporation or
the Certificate of Designation of the Series B Stock without the approval, by
vote or written consent, of the holders of at least a majority of the then
outstanding shares of Series B Stock, voting together as a class, each share of
Series B Stock to be entitled to one vote in each instance, if such amendment
would adversely affect the rights of the holders of Series B Stock.
Redemption. The Series B Stock may not be redeemed by the Company.
SERIES C STOCK
The rights, preferences and limitations of the Series C Stock are as
follows:
Conversion. Each holder of Series C Stock has the right to convert
during any five (5) trading day period up to twenty percent (20%) of the shares
of Series C Stock held by such holder into a number of shares of Common Stock
determined by multiplying the number of shares of Series C Stock to be converted
by a fraction, the numerator of which is the original issue price and the
denominator of which is the lesser of (a) 125% of the original issue price or
(b) 74% of the average of the closing bid price of the Common Stock for the five
(5) trading days immediately preceding conversion (the "Series C Conversion
Price"). At any time after the
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<PAGE>
close of business on the first anniversary of the date on which the Securities
and Exchange Commission declares effective the registration statement
registering the shares of Common Stock issuable upon conversion of the Series C
Stock, all of the shares of Series C Stock shall be convertible, at the option
of the Company, into such number of fully paid and nonassessable shares of
Common Stock as shall be determined by multiplying the number of shares of
Series C Stock outstanding on such conversion date by a fraction, the numerator
of which is the Original Issue Price, and the denominator of which is the Series
C Conversion Price. On the second anniversary of the original issue date for
each holder of Series C Stock all shares of the Series C Stock then held by such
holder shall, without any action on the part of such holder, be automatically
converted into the number of shares of Common Stock determined by multiplying
the number of shares of Series C Stock then held by such holder by a fraction
the numerator of which is the original issue price and the denominator of which
is the applicable Series C Conversion Price. Prior to any such conversion,
however, no holder of Series C Stock may convert Series C Stock into shares of
Common Stock to the extent that the number of shares of Common Stock
beneficially owned by such holder and its affiliates immediately after such
conversion would be more than 4.9% of the shares of Common Stock then
outstanding.
Dividends. Commencing on the date of issuance, a stated dividend (the
"Series C Stated Dividend") accrues quarterly in arrears at the rate of seven
percent (7.0%) per annum of the original issue price with respect to each issued
share of Series C Stock and shall be payable on the last trading day of each
fiscal quarter of the Company. Such Series C Stated Dividends are cumulative and
are payable upon conversion, whether or not earned or declared.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series C Stock, and subject to the liquidation rights and
preferences of any class or series of Stock designated by the Board of Directors
in the future to be senior to or on a parity with the Series C Stock with
respect to liquidation preferences, the holder of each share of Series C Stock
shall be entitled to be paid first out of the assets of the Company available
for distribution to holders of the Company's capital stock of all classes,
whether such assets are capital, surplus or earnings, an amount equal to the
original issue price per share of Series C Stock held by any holder, plus the
Series C Stated Dividend accrued (the "Series C Liquidation Value"). The Series
C Stock shall rank on liquidation junior to the Series A Stock and on parity
with the Series B Stock. If, upon liquidation, dissolution or winding up of the
Company, the assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders of the Series C Preferred
Stock the full amount to which they otherwise would be entitled, the holders of
Series C Preferred Stock shall share ratably in any distribution of available
assets pro rata in proportion to the respective liquidation preference amounts
which would otherwise be payable upon liquidation with respect to the
outstanding shares of the Series C Preferred Stock if all liquidation preference
amounts with respect to such shares were paid in full, based upon the aggregate
Liquidation Value payable upon all shares of Series C Preferred Stock then
outstanding.
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SERIES D STOCK
The rights, preferences and limitations of the Series D Stock are as
follows:
Conversion. Each holder of Series D Stock has the right to convert
during any five (5) trading day period up to twenty percent (20%) of the shares
of Series D Stock held by such holder into a number of shares of Common Stock
determined by multiplying the number of shares of Series D Stock to be converted
by a fraction, the numerator of which is the original issue price and the
denominator of which is the lesser of (a) 125% of the original issue price or
(b) 85% of the average of the closing bid price of the Common Stock for the five
(5) trading days immediately preceding conversion (the "Series D Conversion
Price"). At any time after the close of business on the second anniversary of
the date on which the Securities and Exchange Commission declares effective the
registration statement registering the shares of Common Stock issuable upon
conversion of the Series D Stock, all of the shares of Series D Stock shall be
convertible, at the option of the Company, into such number of fully paid and
nonassessable shares of Common Stock as shall be determined by multiplying the
number of shares of Series D Stock outstanding on such conversion date by a
fraction, the numerator of which is the Original Issue Price, and the
denominator of which is the Series D Conversion Price. Prior to any such
conversion, however, no holder of Series D Stock may convert Series D Stock into
shares of Common Stock to the extent that the number of shares of Common Stock
beneficially owned by such holder and its affiliates immediately after such
conversion would be more than 4.9% of the shares of Common Stock then
outstanding.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series D Stock, and subject to the liquidation rights and
preferences of any class or series of preferred stock designated by the Board of
Directors in the future to be senior to or on a parity with the Series D Stock
with respect to liquidation preferences, the holder of each share of Series D
Stock will be entitled to be paid first out of the assets of the Company
available for distribution to holders of the Company's capital stock of all
classes, whether such assets are capital, surplus or earnings, an amount equal
to the original issue price per share of Series D Stock held by any holder (the
"Series D Liquidation Value"). The Series D Stock shall rank on liquidation
junior to the Series A Stock, Series B Stock and Series C Stock. If, upon
liquidation, dissolution or winding up of the Company, the assets of the Company
available for distribution to its stockholders is insufficient to pay the
holders of the Series D Stock the full amount to which they otherwise would be
entitled, the holders of Series D Stock will share ratably in any distribution
of available assets pro rata in proportion to the respective liquidation
preference amounts which would otherwise be payable upon liquidation with
respect to the outstanding shares of the Series D Stock if all liquidation
preference amounts with respect to such shares were paid in full, based upon the
aggregate Series D Liquidation Value payable upon all shares of Series D Stock
then outstanding.
Voting. Except as otherwise required by the General Corporation Law of
the State of Delaware, each holder of Series D Stock is entitled to vote on all
matters and is entitled to that number of votes equal to the largest number of
whole shares of Common Stock into which such holder's shares of Series D Stock
could be converted at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise required by law, the holders of shares of Series D Stock and
Common Stock shall vote together (or render written consents in lieu of a vote)
as a single class on all matters submitted to the stockholders of the Company.
Notwithstanding the foregoing, for so long as there are any shares of Series D
Stock outstanding, the Company may not amend its Certificate of Incorporation or
the Certificate of Designation of the Series D Stock without the approval, by
vote or written consent, of the holders of at least a majority of the then
outstanding shares of Series D Stock, voting together as a class, each share of
Series D Stock to be entitled to one vote in each instance, if such amendment
would adversely affect the rights of the holders of Series D Stock.
Redemption. The Series D Stock may not be redeemed by the Company.
SERIES E STOCK
The rights, preferences and limitations of the Series E Stock are as
follows:
Conversion. Beginning March 4, 1999, each holder of Series E Stock
shall have the right, at such holder's option, to convert during any five (5)
trading day period up to a maximum of 420 shares of Series E Preferred Stock
held by such holder into the number of shares of Common Stock determined by
multiplying the number of shares of Series E Stock to be converted by a
fraction, the numerator of which is the original issue price of the Series E
Stock and the denominator of which is the average of the closing bid price of
the Common Stock for the three (3) trading days immediately prior to the day of
the conversion.
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Automatic Cancellation. If a holder of Series E Stock converts Series E
Stock into Common Stock and thereafter sells the converted shares of Common
Stock within five (5) trading days of the conversion date, the proceeds from
such sale, after brokers' commissions and expenses but before payment of any tax
liabilities resulting from the sale, will be added to an account of the selling
Series E holder(s) (the "Stockholder's Total Value Account"). If a holder of
Series E Stock converts Series E Stock into Common Stock and thereafter does not
sell the converted shares of Common Stock within five (5) trading days of the
conversion date, a dollar amount equal to the conversion price for such
converted shares of Common Stock multiplied by the number of such converted
shares of Common Stock held in excess of five (5) trading days, will be added to
the Stockholder's Total Value Account. Once the aggregate dollar amount of all
Stockholders' Total Value Accounts exceeds $1,050,000, any and all remaining,
unconverted shares of Series E Stock will be automatically canceled by the
Company without consideration.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series E Stock, and subject to the liquidation rights and
preferences of any class or series of preferred stock issued in the future and
designated by the Board of Directors to be senior to, or on a parity with the
Series E Stock with respect to liquidation preferences, the holders of each
share of Series E Stock shall be entitled to be paid first out of the assets of
the Company available for distribution to holders of the Company's capital stock
of all classes, whether such assets are capital, surplus or earnings, an
aggregate amount equal to $1,050,000 minus the aggregate amount of all actual
cash proceeds received from the sale of Common Stock upon conversion of Series E
Stock (the "Series E Liquidation Value"). The Series E Liquidation Value will be
distributed pro rata to the holders of the Series E Stock in proportion to the
number of shares held by each such holder of Series E Stock. The Series E Stock
will rank junior to the Series A Stock, the Series B Stock, the Series B Stock,
the Series C Stock and the Series D Stock, but senior to the Common Stock. If,
upon liquidation, dissolution or winding up of the Company, the assets of the
Company available for distribution to its stockholders shall be insufficient to
pay the holders of Series E Stock the full amounts to which they otherwise would
be entitled, the holders of Series E Stock shall share ratably in any
distribution of available assets pro rata in proportion to the respective Series
E Liquidation Value amounts which would otherwise be payable upon liquidation
with respect to the outstanding shares of Series E Stock if all liquidation
preference amounts with respect to such shares were paid in full, based upon the
aggregate Series E Liquidation Value payable upon all shares of Series E
Preferred Stock then outstanding.
Dividends. In the event that the Board of Directors declares a cash
dividend payable upon the then outstanding shares of Common Stock, the holders
of the Series E Stock will be entitled to the amount of dividends on the Series
E Stock as would be declared payable on the largest number of whole shares of
Common Stock into which the shares of Series E Stock held by each holder thereof
could then be converted
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Voting. Except as otherwise required by the General Corporation Law of
the State of Delaware, each holder of Series E Stock is entitled to vote on all
matters and is entitled to that number of votes equal to the largest number of
whole shares of Common Stock into which such holder's shares of Series E Stock
could be converted at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise required by law, the holders of shares of Series E Stock and
Common Stock shall vote together (or render written consents in lieu of a vote)
as a single class on all matters submitted to the stockholders of the Company.
Notwithstanding the foregoing, for so long as there are any shares of Series E
Stock outstanding, the Company may not amend its Certificate of Incorporation or
the Certificate of Designation of the Series E Stock without the approval, by
vote or written consent, of the holders of at least a majority of the then
outstanding shares of Series E Stock, voting together as a class, each share of
Series E Stock to be entitled to one vote in each instance, if such amendment
would adversely affect the rights of the holders of Series E Stock.
Redemption. The Series E Stock may not be redeemed by the Company.
SERIES F STOCK
The rights, preferences and limitations of the Series F Stock are as
follows:
Conversion. Beginning June 30, 1998, a maximum aggregate amount of 200
shares of Series F Stock (calculated for all holders of Series F Stock) may be
convertible in any five (5) trading day period. Each holder of Series F Stock
shall have the right to convert the shares of Series F Stock held by such holder
(subject to the maximum aggregate amount of 200 shares of Series F Stock
convertible into Common Stock during each five (5) day trading period) into the
number of shares of Common Stock determined by multiplying the number of shares
of Series F Stock to be converted by a fraction the numerator of which is the
original issue price of the Series F Stock and the denominator of which is the
average of the closing bid price of the Common Stock for the three (3) trading
days immediately prior to the date of the conversion.
Automatic Cancellation. If a holder of Series F Stock converts Series F
Stock into Common Stock and thereafter sells the Converted Shares of Common
Stock within five (5) trading days of the conversion date, the dollar amount of
the net proceeds from such sale, after brokers' commissions and expenses but
before payment of any tax liabilities resulting from the sale, will be added to
the account of the selling Series F holder that for purposes of this section
shall be called the following: (1) the "GDLP Total Value Account" (reflecting
the conversion of up to 1,500 shares of Series F Stock issued to Generic
Distributors Limited Partnership ("GDLP") in connection with a certain Asset
Purchase Agreement by and among the Company, Generic Distributors Incorporated,
GDLP, United Pharmacists Inc., and Mr. Donald Couvillon ("Couvillon"), dated as
of December 15, 1997, as amended (the "Asset Purchase Agreement"); (2) the "GDLP
Deficiency in Net Proceeds Total Value Account" (reflecting the issuance of any
Additional Series F Shares (as that term is defined in Amendment No. 1 to the
Asset Purchase Agreement); (3) the "Couvillon Total Value Account" (reflecting
the conversion of up to 700
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shares of Series F Stock issued to Couvillon pursuant to the Asset Purchase
Agreement); and (4) the "Johnson Total Value Account" (reflecting the conversion
of up to 700 shares of Series F Stock issued to Mr. Sidney Johnson ("Johnson")
pursuant to the Asset Purchase Agreement). The GDLP Total Value Account, the
GDLP Deficiency in Net Proceeds Total Value Account, the Couvillon Total Value
Account and the Johnson Total Value Account shall be collectively known as the
"Stockholders' Total Value Accounts."
If a holder of Series F Stock converts Series F Stock into Common Stock
and thereafter does not sell the converted shares of Common Stock within five
(5) trading days of the conversion date, then a dollar amount equal to the
conversion price for such converted shares of Common Stock multiplied by the
number of such converted shares of Common Stock held in excess of such five (5)
trading days, will be added to the applicable Stockholder's Total Value Account
(that is, the GDLP Total Value Account, the GDLP Deficiency in Net Proceeds
Total Value Account, the Couvillon Total Value Account or the Johnson Total
Value Account, as the case may be). Once the aggregate dollar amount of the GDLP
Total Value Account equals or exceeds $100,000, any and all remaining
unconverted shares of Series F Stock held by GDLP (with the exception of any
Additional Series F Shares issued pursuant to Section 1.05(e) of the Asset
Purchase Agreement) will be automatically canceled by the Company without
consideration. Once the aggregate dollar amount of the GDLP Deficiency in Net
Proceeds Total Value Account equals or exceeds the Deficiency in Net Proceeds,
any and all remaining unconverted Additional Series F Shares held by GDLP will
be automatically canceled by the Company without consideration. Once the
aggregate dollar amount of the Couvillon Total Value Account exceeds $50,000,
any and all remaining, unconverted shares of Series F Stock held by Couvillon
will be automatically canceled by the Company without consideration. Once the
aggregate dollar amount of the Johnson Total Value Account exceeds $50,000, any
and all remaining, unconverted shares of Series F Stock held by Johnson will be
automatically canceled by the Company without consideration.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series F Stock, and subject to the liquidation rights and
preferences of any class or series of preferred stock issued in the future and
designated by the Board of Directors to be senior to, or on a parity with, the
Series F Stock with respect to liquidation preferences, the holders of each
share of Series F Stock shall be entitled to be paid first out of the assets of
the Company available for distribution to holders of the Company's capital stock
of all classes, whether such assets are capital, surplus or earnings, an
aggregate amount equal to $500,000, minus the aggregate amount of all actual
cash proceeds received from the sale of Common Stock issued upon conversion of
Series F Stock (the "Series F Liquidation Value"). The Series F Liquidation
Value shall be distributed pro rata to the holders of the Series F Stock in
proportion to the number of shares held by each such holder of Series F Stock.
The Series F Stock will rank on a parity with the Series E Stock. If, upon
liquidation, dissolution or winding up of the Company, the assets of the Company
available for distribution to its stockholders shall be insufficient to pay the
holders of the Series F Stock the full Liquidation Value to which they
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otherwise would be entitled, the holders of Series F Stock shall share ratably
in any distribution of available assets pro rata in proportion to the respective
Series F Liquidation Value amount which would otherwise be payable upon
liquidation with respect to the outstanding shares of the Series F Stock if all
liquidation preference amounts with respect to such shares were paid in full,
based upon the aggregate Series F Liquidation Value amount payable upon all
shares of Series F Stock then outstanding.
Dividends. In the event that the Board of Directors declares a cash
dividend payable upon the then outstanding shares of Common Stock, the holders
of the Series F Stock will be entitled to the amount of dividends on the Series
F Stock as would be declared payable on the largest number of whole shares of
Common Stock into which the shares of Series F Stock held by each holder thereof
could then be converted.
Voting. Except as otherwise required by the General Corporation Law of
the State of Delaware, each holder of Series F Stock is entitled to vote on all
matters and is entitled to that number of votes equal to the largest number of
whole shares of Common Stock into which such holder's shares of Series F Stock
could be converted at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise required by law, the holders of shares of Series F Stock and
Common Stock shall vote together (or render written consents in lieu of a vote)
as a single class on all matters submitted to the stockholders of the Company.
Notwithstanding the foregoing, for so long as there are any shares of Series F
Stock outstanding, the Company may not amend its Certificate of Incorporation or
the Certificate of Designation of the Series F Stock without the approval, by
vote or written consent, of the holders of at least a majority of the then
outstanding shares of Series F Stock, voting together as a class, each share of
Series F Stock to be entitled to one vote in each instance, if such amendment
would adversely affect the rights of the holders of Series F Stock.
Redemption. The Series F Stock may not be redeemed by the Company.
SERIES G STOCK
The rights, preferences and limitations of the Series G Stock are as
follows:
Conversion. Beginning ninety (90) days after the original issue date,
each holder of Series G Stock is entitled to convert the shares of Series G
Stock held by such holder into the number of shares of Common Stock determined
by multiplying the number of shares of Series G Stock to be converted by a
fraction, the numerator of which is the original issue price of such Series G
Stock and the denominator of which is the average of the closing bid price of
the Common Stock for the three (3) trading days immediately preceding conversion
date. Each holder of Series G Stock will have the right to convert, in any three
(3) day trading period, up to (i) 100 shares of Series G Preferred Stock, or
(ii) the number of shares of Series G Stock that will convert into a number of
shares of Common Stock equal to 5% of the average daily trading volume of the
Common Stock, whichever amount is larger.
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Automatic Cancellation. If a holder of Series G Stock converts Series G
Stock into Common Stock and thereafter sells the converted shares of Common
Stock within two (2) trading days of the conversion date, the net proceeds from
the sale will be added to the account of the selling holder(s) of Series G Stock
that for purposes of this section shall be called the "Series G Stockholder's
Total Value Account." If a holder of Series G Stock converts Series G Stock into
Common Stock and thereafter does not sell the converted shares of Common Stock
within two (2) trading days of the conversion date, then a dollar amount equal
to the conversion price for such converted shares of Common Stock multiplied by
the number of such converted shares of Common Stock held in excess of such two
(2) trading days, will be added to the applicable Series G Stockholder's Total
Value Account. Once the aggregate dollar amount of the Stockholder's Total Value
Account equals or exceeds an amount equal to the number of shares of Series G
Stock issued by the Company on the $550,000, any and all remaining unconverted
shares of Series G Stock will be automatically canceled by the Company without
consideration.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series G Stock (if any), and subject to the liquidation rights
and preferences of any class or series of preferred stock issued in the future
and designated by the Board of Directors to be senior to, or on a parity with
the Series G Stock with respect to liquidation preferences, the holders of each
share of Series G Stock shall be entitled to be paid first out of the assets of
the Company available for distribution to holders of the Company's capital stock
of all classes, whether such assets are capital, surplus or earnings, an
aggregate amount equal to the number of unconverted shares of Series G Stock
then held by such holder multiplied by $100, minus the aggregate amount of all
actual cash proceeds received from the sale of Common Stock issued upon
conversion of Series G Stock (the "Series G Liquidation Value"). The Series G
Liquidation Value shall be distributed pro rata to the holders of the Series G
Stock in proportion to the number of shares held by each such holder of Series G
Stock. The Series G Stock will rank junior to the Series A Stock, the Series B
Stock, the Series C Stock, the Series D Stock, the Series E Stock and the Series
F Stock, but senior to the Common Stock. If, upon liquidation, dissolution or
winding up of the Company, the assets of the Company available for distribution
to its stockholders shall be insufficient to pay the holders of the Series G
Stock the full Series G Liquidation Value to which they otherwise would be
entitled, the holders of Series G Stock shall share ratably in any distribution
of available assets pro rata in proportion to the respective Series G
Liquidation Value amount which would otherwise be payable upon liquidation with
respect to the outstanding shares of the Series G Stock if all liquidation
preference amounts with respect to such shares were paid in full, based upon the
aggregate Series G Liquidation Value amount payable upon all shares of Series G
Stock then outstanding.
Dividends. Commencing on the original issue date and continuing
thereafter until there are no shares of Series G Stock outstanding, each holder
of Series G Stock will be entitled to receive a dividend of six dollars ($6.00)
per share per annum (the "Series G Stated Dividend"). The Series G Stated
Dividend shall be payable on the last day of each month after the original issue
date. Series G Stated Dividends shall be payable by the Company in cash or
Common Stock
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at the sole discretion of the Company, whether or not earned or declared. In the
event that the Board of Directors declares a cash dividend payable upon the then
outstanding shares of Common Stock, the holders of the Series G Stock shall be
entitled to the amount of dividends on the Series G Stock as would be declared
payable on the largest number of whole shares of Common Stock into which the
shares of Series G Stock held by each holder thereof could then e converted.
Voting. Except as otherwise required by the General Corporation Law of
the State of Delaware, the Series G Stock is not entitled to vote on any matter.
Redemption. At any time after the original issue date and at the sole
discretion of the Company, the Company may redeem from each holder of shares of
Series G Stock, any number of shares of Series G Preferred Stock as so
determined by the Company. The Series G Stock shall be redeemed by paying for
each share in cash an amount equal to the original issue price for each such
share. Any amount paid by the Company to the holders of Series G Stock pursuant
to a redemption shall be added to the Series G Stockholder's Total Value Account
and such amount shall be used in calculating the automatic cancellation
provisions of the Series G Stock.
SERIES H STOCK
The rights, preferences and limitations of the Series H Stock are as
follows:
Conversion. Each holder of Series H Stock shall have the right to
convert at any time after one year from the original issuance date any of the
shares of Series H Stock held by such holder into the number of shares of Common
Stock determined by multiplying the number of shares of Series H Stock to be
converted by a fraction the numerator of which is the original issue price of
the Series H Stock, and the denominator of which is the applicable Conversion
Price; provided that in no event shall any holder of Series H Preferred Stock
convert more than twenty percent (20%) of such holder's shares of Series H
Preferred Stock in any period of seven (7) consecutive days. On the second
anniversary of the date hereof, all outstanding shares of Series H Preferred
Stock shall automatically be converted into such number of fully paid and non-
assessable shares of Common Stock as shall be determined by multiplying the
number of shares of Series H Preferred Stock to be converted by a fraction, the
numerator of which is the Original Issue Price, and the denominator of which is
67% of the average of the closing bid price of the Common Stock for the five (5)
trading days immediately preceding any conversion date. Additionally, in no
event shall any holder of Series H Stock, prior to earlier to occur of the
delivery of a mandatory redemption notice by the Company or a change in control
of the Company, be entitled to convert Series H Stock into shares of Common
Stock to the extent that such conversions when taken together with all other
conversions of shares of Series H Stock shall exceed 19.9% of the issued and
outstanding shares of Common Stock of the Company on the original date of
issuance of Series H Stock; provided that if such conversions exceed 19.9% the
Company at its sole option shall either (i) redeem any shares of Series H
Preferred Stock submitted for conversion in excess of 19.9% for an amount equal
to 150% of the original issue price, (ii) obtain approval of its stockholders
for the issuance of such additional shares of Common Stock or (iii) do a
combination of any of the foregoing. Notwithstanding the foregoing,
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upon the delivery of a mandatory redemption notice or upon the consummation of a
change in control of the Company, all such shares of Series H Stock then
outstanding shall be converted into Common Stock.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Company designated to
be junior to the Series H Stock, and subject to the liquidation rights and
preferences of any class or series of preferred stock designated by the Board of
Directors in the future to be senior to or on a parity with the Series H Stock
with respect to liquidation preferences, the holder of each share of Series H
Stock shall be entitled to be paid first out of the assets of the Company
available for distribution to holders of the Company's capital stock of all
classes, whether such assets are capital, surplus or earnings, an amount equal
to the original issue price per share of Series H Stock held by any holder (the
"Series H Liquidation Value"). The Series H Stock shall rank on liquidation
junior to the Series A Stock, the Series B Stock, the Series C Stock, the Series
D Stock, the Series E Stock, the Series F Stock and the Series G Stock, but
senior to the Common Stock. If, upon liquidation, dissolution or winding up of
the Company, the assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders of the Series H Stock the
full amount to which they otherwise would be entitled, the holders of Series H
Stock shall share ratably in any distribution of available assets pro rata in
proportion to the respective liquidation preference amounts which would
otherwise be payable upon liquidation with respect to the outstanding shares of
the Series H Stock if all liquidation preference amounts with respect to such
shares were paid in full, based upon the aggregate Series H Liquidation Value
payable upon all shares of Series H Stock then outstanding.
Dividends. If the Board of Directors shall declare a cash dividend
payable upon the then outstanding shares of Common Stock, the holders of the
Series H Stock shall be entitled to the amount of dividends on the Series H
Stock as would be declared payable on the largest number of whole shares of
Common Stock into which the shares of Series H Stock held by each holder thereof
could then be converted. In the event the Company shall make or issue, or shall
fix a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution with respect to the Common Stock
payable in (i) securities of the Company other than shares of Common Stock or
(ii) other assets (excluding cash dividends or distributions), then and in each
such event provision shall be made so that the holders of the Series H Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the number of securities or such other assets
of the Company which they would have received had their Series H Stock been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities or such other assets receivable by them during
such period, giving application to all other adjustments called for during such
period under the terms of the Series H Stock.
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Voting. Except as otherwise required by the General Corporation Law of
the State of Delaware, the Series H Stock is not entitled to vote on any matter.
Redemption. The Series H Stock may not be redeemed by the Company.
DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date that the
person became an interested stockholder unless (with certain exceptions) the
business combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the Company's voting stock.
As a result of the foregoing provisions, the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise and the removal of
incumbent officers and directors could be made more difficult. These provisions
are expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
the Company to negotiate with the Company first. The Company believes that the
benefits of increased protection of the Company's potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure the Company outweigh the disadvantages of discouraging such
proposals because, among other things, negotiation of such proposals could
result in an improvement of their terms.
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is The American Stock
Transfer & Trust Company, located at 40 Wall Street, New York, NY 10005.
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LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Foley, Hoag & Eliot LLP.
EXPERTS
The Company's consolidated balance sheets as of December 31, 1997 and
December 31, 1996 and the related consolidated statements of loss, changes in
stockholders' equity and cash flows for the year ended December 31, 1997, the
six months ended December 31, 1996 and the years ended June 30, 1996 and 1995
incorporated by reference in this Prospectus, have been audited by Wolf &
Company, P.C., independent auditors, and are incorporated in reliance on the
report of such firm, given on their authority as experts in accounting and
auditing.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an estimate of the expenses expected to
be incurred in connection with the issuance and distribution of the securities
being registered:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission..............$ 213.69
Nasdaq SmallCap Market additional listing fee....................... 7,500.00
Boston Stock Exchange additional listing fee........................ 5,000.00
Blue Sky Fees and Expenses.......................................... 1,000.00
Accounting Fees and Expenses........................................ 2,000.00
Legal Fees and Expenses............................................. 30,000.00
Transfer Agent Fees and Expenses.................................... 1,000.00
Miscellaneous....................................................... 3,286.31
----------
TOTAL....................................$50,000.00
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(A) The Company is a Delaware corporation. Section 145 of the Delaware
General Corporation Law, as amended, provides in regard to indemnification of
directors and officers as follows:
"(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
38
<PAGE>
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in subsections
(a) and (b) of this section. Such determination shall be made, with respect to a
person who is a director or officer at the time of such determination, (1) by
the board of directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) by a committee
of such directors designated by majority vote of such directors, even though
less than a quorum, or (3) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (included attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by former director or officers or employees and agents
may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such,
39
<PAGE>
whether or not the corporation would have the power to indemnify such person
against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents so that
any person who was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses."
(B) Article 9 of the Company's Certificate of Incorporation contains
the following provision relating to the indemnification of directors and
officers:
"To the maximum extent permitted by Section 102(b)(7) of the General
Corporation Law of Delaware, a director of this Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit."
40
<PAGE>
(C) Article VII of the Company's By-laws contains the following
provisions relating to indemnification of officers and directors:
"Reference is made to Section 145 and any other relevant provisions of
the General Corporation Law of the State of Delaware. Particular reference is
made to the class of persons, hereinafter called "Indemnitees," who may be
indemnified by a Delaware corporation pursuant to the provisions of such Section
145, namely, any person or the heirs, executors, or administrators of such
person, who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that such
person is or was a director, officer, employee, or agent of such corporation or
is or was serving at the request of such corporation as a director, officer,
employee, or agent of such corporation or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise. The
Corporation shall, and is hereby obligated to, indemnify the Indemnitees, and
each of them in each and every situation where the Corporation is obligated to
make such indemnification pursuant to the aforesaid statutory provisions. The
Corporation shall indemnify the Indemnitees, and each of them, in each and every
situation where, under the aforesaid statutory provisions, the Corporation is
not obligated, but is nevertheless permitted or empowered, to make such
indemnification, it being understood that, before making such indemnification
with respect to any situation covered under this sentence, (i) the Corporation
shall promptly make or cause to be made, by any of the methods referred to in
Subsection (d) of such Section 145, a determination as to whether each
Indemnitee acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Corporation, and, in the case of
any criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful, and (ii) that no such indemnification shall be made unless
it is determined that such Indemnitee acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, in the case of any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful."
The effect of these provisions would be to permit indemnification by
the Company of for, among other liabilities, liabilities arising under the
Securities Act of 1933 (the "Securities Act").
ITEM 16. EXHIBITS.
The following exhibits, required by Item 601 of Regulation S-K, are
filed as a part of this Registration Statement. Exhibit numbers, where
applicable, in the left column correspond to those of Item 601 of Regulation
S-K.
Exhibit No. Item and Reference
3a -- Certificate of Incorporation, as amended (filed as
Exhibit 3a to the Company's Report on Form 10-Q for the
Quarter ended June 30, 1998, as amended, and
incorporated herein by reference).
3b -- By-laws, as amended (filed as Exhibit 3b to Registrant's
Registration Statement on Form S-1, No. 33-46445, and
incorporated by reference).
4a -- Specimen Common Stock Certificate (filed as Exhibit 4a
to the Company's Registration Statement on Form S-1, No.
33-31836-B and incorporated by reference).
4b -- Certificate of Designations, Preferences and Rights of
Series C Preferred Stock of the Company (filed as
Exhibit 3b to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
4c -- Registration Rights Agreement dated August 21, 1997
among the Company and Endeavor Capital Fund S.A. (filed
as Exhibit 4 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
41
<PAGE>
4f -- Agreement dated March 19, 1998 with Endeavour Capital
Fund S.A. (filed as Exhibit 4d to the Company's Report
on Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference)
5.1 -- Opinion of Foley, Hoag & Eliot LLP
10a -- Stock Purchase Agreement dated August 20, 1997 between
the Company and Endeavour Capital Fund S.A., together
with all annexes thereto
23a -- Consent of Wolf & Company, P.C. dated November 17, 1998
23b -- Consent of Grant Thornton LLP dated November 18, 1998
23c -- Consent of Foley, Hoag & Eliot LLP (See Exhibit 5.1)
24 -- Power of Attorney (on signature page)
42
<PAGE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A, and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h), under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective.
(d) The undersigned registrant hereby undertakes that for the purpose
of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
43
<PAGE>
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Cambridge, Commonwealth of Massachusetts on
November 18, 1998.
DYNAGEN, INC.
By: /s/ DHANANJAY G. WADEKAR
-----------------------------
Dhananjay G. Wadekar
Executive Vice President
POWER OF ATTORNEY
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Dhananjay G. Wadekar, with full power to act
without the other, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (until revoked in writing) to sign any and all
amendments (including post-effective amendments and amendments thereto) to this
Registration Statement on Form S-3 of DynaGen, Inc., and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary fully to all intents and purposes as
he might or could do in person thereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Name Capacity Date
- - ---- -------- ----
/s/ Dhananjay G. Wadekar Executive Vice President and November 18, 1998
- - ------------------------ Director
Dhananjay G. Wadekar
44
<PAGE>
/s/ F. Howard Schneider Director November 18, 1998
- - ------------------------
Dr. F. Howard Schneider
/s/ Steven Georgiev Director November 18, 1998
- - ------------------------
Steven Georgiev
/s/ Robert Cusick Chairman of the Board of November 18, 1998
- - ------------------------ Directors, President, Chief
Executive Officer and
Treasurer
45
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
3a -- Certificate of Incorporation, as amended (filed as
Exhibit 3a to the Company's Report on Form 10-Q for the
Quarter ended June 30, 1998, as amended, and
incorporated herein by reference).
3b -- By-laws, as amended (filed as Exhibit 3b to Registrant's
Registration Statement on Form S-1, No. 33-46445, and
incorporated by reference).
4a -- Specimen Common Stock Certificate (filed as Exhibit 4a
to the Company's Registration Statement on Form S-1, No.
33-31836-B and incorporated by reference).
4b -- Certificate of Designations, Preferences and Rights of
Series C Preferred Stock of the Company (filed as
Exhibit 3b to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
4c -- Registration Rights Agreement dated August 21, 1997
among the Company and Endeavor Capital Fund S.A. (filed
as Exhibit 4 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
5.1 -- Opinion of Foley, Hoag & Eliot LLP
10a -- Stock Purchase Agreement dated August 20, 1997 between
the Company and Endeavour Capital Fund S.A., together
with all annexes thereto.
23a -- Consent of Wolf & Company, P.C. dated November 17, 1998
23b -- Consent of Grant Thornton LLP dated November 18, 1998
23c -- Consent of Foley, Hoag & Eliot LLP (See Exhibit 5.1)
24 -- Power of Attorney (on signature page)
46
FOLEY, HOAG & ELIOT LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109-2170
-------------------
TELEPHONE 617-832-1000 1615 L STREET, N.W., SUITE 850
FACSIMILE 617-832-7000 WASHINGTON, D.C. 20036
http://www.fhe.com TEL: 202-775-0600
FAX: 202-857-0140
David A. Broadwin
(617) 832-1259
[email protected]
November 17, 1998
DynaGen, Inc.
Riverside Technology Center
840 Memorial Drive, 4th Floor
Cambridge, MA 02139
Gentlemen:
We are familiar with the Registration Statement on Form S-3 (the
"Registration Statement") to which this opinion is an exhibit, to be filed by
DynaGen, Inc., a Delaware corporation (the "Company"), with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. The
Registration Statement, as amended, relates to the proposed public offering by a
securityholder of the Company of a total of 7,243,568 shares (the "Shares") of
the Company's common stock, $0.01 par value per share ("Common Stock"), issuable
upon conversion of shares of Series C Convertible Preferred Stock, $0.01 par
value per share ("Series C Stock") of the Company held by such securityholder.
In arriving at the opinion expressed below, we have examined and relied
on the following documents:
(1) the Certificate of Incorporation and By-laws of the
Company, each as amended as of the date hereof; and
(2) the records of meetings and consents of the Board of
Directors of the Company relating to the issuance of the Shares
provided to us by the Company.
In addition, we have examined and relied on the originals or copies certified or
otherwise identified to our satisfaction of all such corporate records of the
Company and such other instruments and other certificates of public officials,
officers and representatives of the Company and such other persons, and we have
made such investigations of law, as we have deemed appropriate as a basis for
the opinion expressed below. In such examination, we have assumed, without
independent verification, the genuineness of all signatures (whether original or
photostatic), the authenticity of all documents submitted to us as originals and
the conformity to
<PAGE>
DynaGen, Inc.
November 17, 1998
Page 2
authentic original documents of all documents submitted to us as certified or
photostatic copies. We have further assumed that a sufficient number of duly
authorized and unissued shares of Common Stock will be available for issuance at
the time the shares of Series C Stock are presented for conversion in accordance
with the terms thereof; and that the consideration received by the Company in
respect of each Share will be no less than its par value.
Based upon and subject to the foregoing, it is our opinion that the
Company has taken all necessary corporate action required to authorize the
issuance of the Shares, and the Shares, when issued upon receipt of
consideration therefor, and when certificates for the same have been duly
executed and countersigned and delivered, will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
FOLEY, HOAG & ELIOT LLP
By:/s/ David A. Broadwin
----------------------------
A Partner
EXHIBIT 10a
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of the date of acceptance set
forth below, is entered into by and between DYNAGEN, INC., a Delaware
corporation, with headquarters located at 99 Erie Street, Cambridge,
Massachusetts 02139 (the "Company"), and the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon exemptions from securities registration afforded
under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act") and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, Series C Convertible Preferred Stock, $.01 par
value per share and Series D Convertible Preferred Stock $.01 par value
(collectively the "Preferred Stock"), of the Company which will be convertible
into shares of Common Stock, $.01 par value per share (the "Common Stock"), of
the Company upon the terms and subject to the conditions of such Preferred Stock
(the Common Stock and Preferred Stock sometimes referred to herein as
"Securities"), and a Warrant to purchase 250,000 shares of Common Stock (the
"Warrant") and subject to acceptance of this Agreement by the Company;
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 parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
A. PURCHASE. The undersigned hereby agrees to purchase from the Company
Series C Preferred Stock of the Company, in the amount set forth on the
signature page of this Agreement, and having the terms and conditions set forth
in the Certificate of Designations attached hereto as ANNEX I. The purchase
price for the Series C Preferred Stock shall be as set forth on the signature
page hereto and shall be payable in United States Dollars.
B. FORM OF PAYMENT. The Buyer shall pay the purchase price for the
Preferred Stock by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as ANNEX II (the "Joint Escrow Instructions") as
set forth below. Promptly following payment by the Buyer to the Escrow Agent of
the purchase price of the Preferred Stock, the Company shall deliver a
Certificate for the Preferred Stock duly executed on behalf of the Company, to
the Escrow Agent. By signing this Agreement, the Buyer and the Company, and
subject to acceptance by the Escrow Agent, each agrees to all of the terms and
conditions of, and becomes
<PAGE>
a party to, the Joint Escrow Instructions, all of the provisions of which are
incorporated herein by this reference as if set forth in full.
C. METHOD OF PAYMENT. Payment into escrow of the purchase price for the
Preferred Stock shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No. 105
Not later than 1:00 p.m., New York time, on the date which is two (2) NASD
trading days after the Company shall have accepted this Agreement and returned a
signed counterpart of this Agreement to the Escrow Agent by facsimile, the Buyer
shall deposit with the Escrow Agent the aggregate purchase price for the
Preferred Stock, in immediately available funds. Time is of the essence with
respect to such payment, and failure by the Buyer to make such payment shall
allow the Company to cancel this Agreement.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
a. Without limiting its right to resell the Common Stock under the
Registration Rights Agreement, the Buyer is purchasing the Preferred Stock and
will be acquiring the shares of Common Stock issuable upon conversion of the
Preferred Stock for its own account for investment only and not with a view
towards the resale, public sale or distribution thereof and not with a view to
or for sale in connection with any distribution thereof;
b. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the entire loss of its investment in the
Preferred Stock:
-2-
<PAGE>
c. All subsequent offers and sales of the Preferred Stock and the
shares of Common Stock issuable upon conversion of, or issued as dividends on,
the Preferred Stock by the Buyer shall be made pursuant to registration of the
Shares under the 1933 Act or with respect to the Preferred Stock pursuant to an
exemption from registration;
d. The Buyer understands that the Preferred Stock is being offered and
sold, and the Shares are being offered, to it in reliance on 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, the and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Preferred Stock and to receive an offer of the Shares;
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Preferred Stock and the offer of
the Shares which have been requested by the Buyer, including ANNEX V hereto. The
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers to
any such inquiries. Without limiting the generality of the foregoing, the Buyer
has also had the opportunity to obtain and to review the Company's (1) Annual
Report on Form 10-K for the fiscal year ended June 30, 1996; (2) Transition
Report on Form 10-K for the six-month period from July 1, 1996 to December 31,
1996, as amended; (3) Quarterly Reports on Form 10-Q for the fiscal quarters
ended September 30, 1996, March 31, 1997 and June 30, 1997; (4) The Company's
Proxy Statement for its Annual Meeting of Stockholders held on January 30, 1997;
(5) The Company's Current Reports on Form 8-K filed on August 23, 1996,
September 23, 1996, January 15, 1997, February 3, 1997, March 24, 1997 and July
3, 1997, as amended, and (6) The Company's Form S-3 Registration Statement filed
with the Securities and Exchange Commission on August 11, 1997 (the "Company's
SEC Documents").
f. The Buyer understands that its investment in the Securities involves
a high degree of risk;
g. The Buyer understands that no United States federal or state agency
or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities;
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
i. Notwithstanding the provisions hereof, in no event (except with
respect to an Event of Mandatory Conversion) shall the holder be entitled to
convert any preferred Stock in excess of
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that number of shares upon conversion of which the sum of (1) the number of
shares of Common Stock beneficially owned by the Buyer and its affiliates (other
than shares of common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Preferred Stock), and (2) the number
of shares of Common Stock issuable upon the conversion of the Preferred Stock
with respect to which the determination of this proviso is being made, would
result in beneficial ownership by the Buyer and its affiliates of more than 4.9%
of the outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13 D-G thereunder, except as otherwise provided in
clause (1) of such proviso.
3. COMPANY REPRESENTATIONS, ETC.
Except as disclosed in Annex V, delivered in writing to the Buyer, the
Company represents and warrants to the Buyer that:
A. CONCERNING THE SHARES. The Common Shares have been duly authorized
and, when issued upon conversion of, or as dividends on, the Preferred Stock,
will be duly and validly issued, fully paid and non-assessable and will not
subject the holder thereof to personal liability by reason of being such holder.
There are no preemptive rights except that the holders of the Company's Series A
Preferred Stock have the right to acquire a portion of the Common Shares which
rights have been waived or otherwise provided for.
B. REPORTING COMPANY STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is duly qualified as a foreign corporation in all jurisdictions in
which the failure to so qualify would have a material adverse effect on the
Company and its subsidiaries taken as a whole. The Company has registered its
Common Stock pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Common Stock is listed and traded on the
NASDAQ/Small Cap Market. The Company has timely filed all material required to
be filed pursuant to all reporting obligations under either Section 13(a) or
15(d) of the Exchange Act for a period of at least twelve (12) months
immediately preceding the offer or sale of the Preferred Stock, and has received
no notice, either oral or written, with respect to the continued eligibility of
the Common Stock for such listing.
C. AUTHORIZED SHARES. The Company has sufficient authorized and
unissued Shares as may be reasonably necessary to effect the conversion of the
Preferred Stock. The Common Shares have been duly authorized and, when issued
upon conversion of, or as interest on, the Preferred Stock, will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder.
D. STOCK PURCHASE AGREEMENT; REGISTRATION RIGHTS AGREEMENT
AND STOCK. This Agreement and the Registration Rights Agreement, the form
of which is
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attached hereto as ANNEX IV (the "Registration Rights Agreement"), have been
duly and validly authorized by the Company, this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the
Registration Rights Agreement, when executed and delivered by the Company, will
be, valid and binding agreements of the Company enforceable in accordance with
their respective terms, subject as to enforceability to general principles of
equity, the indemnification provisions of the Registration Rights Agreement, and
to bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally; and the Preferred Stock will be duly
and validly issued, fully paid and non-assessable when delivered on behalf of
the Company upon payment therefor in accordance with this Agreement, subject to
general principles of equity and to bankruptcy, insolvency, moratorium, or other
similar laws affecting the enforcement of creditors' rights generally.
E. NON-CONTRAVENTION. The execution and delivery of this Agreement and
the Registration Rights Agreement by the Company, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Preferred Stock do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under, the
(i) certificate of incorporation or by-laws of the Company, (ii) any indenture,
mortgage, deed of trust, or other material agreement or instrument to which the
Company is a party or by which it or any of its properties or assets are bound,
(iii) any material existing applicable law, rule, or regulation or any
applicable decree, judgment, or (iv) order of any court, United States federal
or state regulatory body, administrative agency, or other governmental body
having jurisdiction over the Company or any of its properties or assets, except
such conflict, breach or default which would not have a material adverse effect
on the transactions contemplated herein.
F. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the Stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
G. SEC FILINGS. None of the SEC Filings with the Securities and
Exchange Commission at the time they were filed, contained any untrue statement
of a material fact or omitted to any state material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Except as set forth on
ANNEX V hereto, the Company has timely filed all requisite forms, reports and
exhibits thereto with the Securities and Exchange Commission.
H. ABSENCE OF CERTAIN CHANGES. Since January 1, 1997, there has been
no material adverse change and no material adverse development in the business,
properties, operations, financial condition, or results of operations of the
Company, except as disclosed in ANNEX V or in the Company's SEC Documents.
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I. FULL DISCLOSURE. There is no fact known to the Company (other than
general economic conditions known to the public generally), and other than facts
disclosed in the Company's SEC Documents, that has not been disclosed in writing
to the Buyer that (i) could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), earnings, business affairs,
properties or assets of the Company or (ii) could reasonably be expected to
materially and adversely affect the ability of the Company to perform its
obligations pursuant to this Agreement.
J. ABSENCE OF LITIGATION. Except as set forth in ANNEX V hereto, and in
the Company's SEC Documents, which the Buyer has reviewed, there is no action,
suit, proceeding, inquiry or investigation before or by any court, public board
or body pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company or any of its subsidiaries, wherein
an unfavorable decision, ruling or finding would have a material adverse effect
on the properties, business, condition (financial or otherwise), results of
operations or prospects of the Company and its subsidiaries taken as a whole or
the transactions contemplated by this Agreement or any of the documents
contemplated hereby or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other documents.
K. ABSENCE OF EVENTS OR DEFAULT. Except as set forth in ANNEX V hereto
and Section 3(e), no Event of Default, as defined in the respective agreement to
which the Company is a party, and no event which, with the giving of notice or
the passage of time or both, would become an Event of Default (as so defined),
has occurred and is continuing, which would have a material adverse effect on
the Company's financial condition or results of operations.
L. NO DEFAULT. To its knowledge, the Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it or its property is
bound, and neither the execution of, nor the delivery by the Company of, nor the
performance by the Company of its obligations under, this Agreement or the
Preferred Stock, other than the conversion provision thereof, will conflict with
or result in the breach or violation of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company under, (i) any material
indenture, mortgage deed of trust or other material agreement applicable to the
Company or instrument to which the Company is a party or by which it is bound,
(ii) any statute applicable to the Company or its property, (iii) the
Certificate of Incorporation or By-Laws of the Company, (iv) any decree,
judgment, order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or its properties, or (v) the Company's
listing agreement for its Common Stock.
M. PRIOR ISSUES. During the twelve (12) months preceding the date
hereof, the Company has not issued any securities other than (i) as reflected in
the Company's SEC Documents, of which 44,700 shares of Series A Preferred Stock
and 7,500 shares of Series B
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Preferred Stock, remain unconverted, and (ii) options and warrants to purchase
shares of Common Stock which have been granted to directors, employees,
consultants and advisers of the Company, as further set forth on Annex 3(m).
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) Preferred
Stock has not been and is not being registered under the provisions of the 1933
Act and, except as provided in the Registration Rights Agreement, the Shares
have not been and are not being registered under the 1933 Act, and may no be
transferred unless (A) subsequently registered thereunder or (B) the Buyer shall
have delivered to the Company an opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company, to the effect that the Securities to
be sold or transferred may be sold or transferred pursuant to an exemption from
such registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act 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 used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other person is under any obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder.
B. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the
Preferred Stock, and, until such time as the Common Stock has been registered
under the 1933 Act as contemplated by the Registration Rights Agreement and sold
in accordance with such Registration Statement, the shares of Common Stock
issued to the Buyer upon conversion of the Preferred Stock shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the Preferred Stock and such shares of
Common Stock):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
C. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter
into the Registration Rights Agreement, in substantially the form attached
hereto as ANNEX IV, on or before the Closing Date (as defined in Section 7).
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D. FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Preferred Stock to the Buyer under
any United States laws and regulations, or by any domestic securities exchange
or trading market, and to provide a copy thereof to the Buyer promptly after
such filing.
E. REPORTING STATUS. So long as the Buyer beneficially owns any of the
Preferred Stock, the Company shall file all reports required to be filed with
the SEC pursuant to Section 13 or 15(d) of the Exchange Act, and the Company
shall no terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.
F. USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Preferred Stock (excluding amounts paid by the Company for legal fees and
finder's fees in connection with the sale of the Preferred stock) for internal
working capital purposes, and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership
enterprise or other person.
G. CERTAIN AGREEMENTS. (i) Except as provided herein with respect to
Acquisition Financing or in 4(g)(ii)(d) hereof, and the sale of up to 5,300
additional shares of Series A Preferred Stock, the Company covenants and agrees
that it will not, without the prior written consent of the Buyer, enter into any
subsequent or further offer or sale of Common Stock or securities convertible
into Common Stock with any third party until the expiration of thirteen (13)
months after the effective date of the Registration Statement (the "Effective
Date").
(II) SPECIAL PROVISION RELATING TO ACQUISITION FINANCING.
(a) Following the issuance of the Series C Preferred Stock to the
Buyer, and until the expiration of the thirteen (13) month period following the
Expiration Date, the Company shall provide the Buyer with the following rights
to participate in any private placement financing of equity securities (or
securities convertible into Equity Securities of the Company) by the Company
(exempt from the registration requirements of the Securities Act of 1993) where
at least 90% of the proceeds of such financing are intended to be used by the
Company to acquire the capital stock or assets of another business enterprise
(including, within the context of such Acquisition Financing, the working
capital requirements of the acquired entity) (an "Acquisition Financing"). This
right of first refusal is granted to the Buyer subject to, and subordinate to,
the prior rights of first refusal of the holders of the Series A Preferred Stock
with respect to private placement of securities by the Company, and is granted
to Buyer after the holders of Series A Preferred Stock either waive or decline
to exercise their rights of first refusal, or if such rights of first refusal of
the holders of Series A Preferred Stock are otherwise terminated. If the Company
obtains Acquisition Financing from a third party during the thirteen-month
period following the first issuance of shares of Series D Preferred Stock, then
the Buyer's obligations under Section 4(i) below to purchase additional tranches
of Series D Preferred Stock shall be suspended until the earlier of (x) such
time that the Company provides
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written notice that all equity securities issued by the Company in such
Acquisition Financing have been converted to Common Stock, or (y) the conclusion
of the thirteen (13) month period.
(b) Notice to Participate. Subject to the prior exercise or
waiver of the rights of the holders of the Series A Preferred Stock, the Company
shall, prior to any issuance by the Company of any of its securities to be
issued in an Acquisition Financing, offer to the Buyer by written notice the
right, for a period of five (5) business days, to purchase all of such
securities for cash at an amount equal to the price or other consideration for
which such securities proposed to be issued. The Company's written notice to the
Buyer shall describe the securities proposed to be issued by the Company and
specify the number, price and payment terms. Except as may be necessary with
respect to potential designees, the Buyer agrees to keep the terms and existence
of such securities issuance confidential. The Buyer, or its designee, may accept
the company's offer as to the full number of securities offered to it, by
written notice thereof given by it to the Company prior to the expiration of the
aforesaid five (5) day period, in which event the Company shall promptly sell
and such Buyer shall buy, upon the terms specified, the number of securities
agreed to be purchased by such Buyer, or its designee. The rights contained in
this Section are not transferable by the Buyer except as provided herein.
(c) Options of Buyer. Following the exercise or waiver of the
rights of first refusal of the Series A Preferred Stock, the Buyer shall have
the following rights: (i) to participate, or have its designee participate, or
decline to participate in the Acquisition Financing by delivering notice (or
fail to deliver notice) during the five-day period; (ii) continue to exercise
its rights to purchase shares of Series D Preferred Stock as provided in Section
4i; or (iii) accelerate its right to purchase shares of Series D Preferred Stock
up to an aggregate of 48,000 shares of Series D Preferred Stock.
(d) Exceptions to Right to Participate. The first refusal rights
of the Buyer pursuant to this Section shall not apply to securities issued by
the Company (i) upon conversion of any of the shares of any series of Preferred
Stock or the exercise of Warrants to purchase Common Stock, (ii) as a stock
dividend or upon any subdivision of shares of Common Stock, provided that the
securities issued pursuant to such stock dividend or subdivision are limited to
additional shares of Common Stock, (iii) pursuant to subscriptions, warrants,
options, convertible securities, or other rights which are outstanding on the
date of this Agreement, (iv) as non-cash consideration for the acquisition
(whether by merger or otherwise) by the Company or any of its subsidiaries of
all or substantially all of the stock or assets of any other entity, (v)
pursuant to exercise or warrants or options to purchase Common Stock granted to
directors, officers, employees, investment bankers, advisers or consultants of
the Company in connection with their service to the Company, (vi) pursuant to
any other transaction by the Company in connection with the financing of the
acquisition of Superior Pharmaceutical, (vii) pursuant to the licensing of
technology by the Company or from the Company, or pursuant to any corporate
partnership, strategic alliance or joint venture entered into by the Company,
and (viii) upon the exercise of any right which was not itself in violation of
the terms of this Section.
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(e) Offering of Securities to Third Parties. The Company shall be
free at any time prior to sixty (60) days after the expiration of its notice to
offer to the Buyer, to offer and sell to any third party or parties the number
of such securities not agreed by the Buyer, or its designee, to be purchased by
it, at a price and on payment terms no less favorable to the Company than those
specified in such notice of offer to the Buyer. However, if such third party
sale or sales are not consummated within such sixty (60) day period, the Company
shall not sell such securities as shall not have been purchased within such
period without again complying with this Section 5. No Registration Statement
with respect to any Acquisition Financing with any third party shall be made
effective until 45 days after the Effective Date as defined above.
H. WARRANTS. The Company agrees to issue to the Buyer at the Closing,
transferable divisible warrants (the "Warrants") for 250,000 shares of Common
Stock. Such Warrants shall bear an exercise price per share of Common Stock as
follows: 125% of the Market Price, as defined in the Certificate of Designation,
on the Closing Date, and shall be exercisable immediately upon issuance, and for
a period of three (3) years after issuance, in the form annexed hereto as
Exhibit VI, together with piggy-back registration rights, and demand
registration rights.
I. SERIES D PREFERRED STOCK. The Buyer irrevocably agrees to purchase
up to $4,800,000, and the Company irrevocably agrees to sell the Buyer up to
$2,400,000 of Series D Preferred Stock (the "Series D Preferred Stock") in a
series of tranches, commencing thirty (30) days after the Effective Date of the
Registration Statement contemplated by the Registration Rights Agreement
attached hereto as ANNEX IV (the "Effective Date"). Buyer's obligation to
purchase the Series D Preferred Stock on each Additional Closing Date (which
shall occur not less than thirty (30 ) calendar days apart), shall be contingent
upon the satisfaction of the following conditions:
(a) The Company shall give the Buyer five (5) days prior written
notice;
(b) The Series D Preferred Stock issued in each tranche shall be
not less than $200,000 nor in excess of $400,000 principal amount;
(c) On each Additional Closing Date;
(i) the Registration Statement required to be filed under the
Registration Rights Agreement, is effective;
(ii) The representations and warranties contained in Section 3
shall be true and correct in all material respects;
(iii) The average daily trading volume for the previous thirty
(30) trading days must exceed $100,000;
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(iv) The average daily share price of the common stock for the
ten trading days prior thereto, must exceed 60% of the price per share on the
Closing Date of the Series C Preferred Stock, or on the immediately preceding
Additional Closing Date as applicable; and
(d) In the event that (x) the Company does not exercise its
option to require the Buyer to purchase at least $2,400,000 of Series D
Preferred Stock, or (y) the Buyer does not purchase at least $2,400,000 of
Series D Preferred Stock because (A) the Buyer in its discretion, refuses to
purchase such amount because of the failure to satisfy the conditions set forth
in Paragraph 4i(c)(iii) or Paragraph 4i(c)(iv) hereof, or (B) the Buyer's
obligation to purchase is suspended under Paragraph 4g(i)(a), the Company will,
not later than thirteen (13) months after the Effective Date issue to the Buyer
an additional 300,000 Warrants upon the terms and conditions of Paragraph 4(h)
hereof.
(e) Notwithstanding anything to the contrary contained herein, in
the event the Buyer does not purchase a tranche, or at least $200,000 of a
tranche, of Series D Preferred Stock because the conditions preceded in
Paragraph 4(i)(c)(iii) or (c)(iv) have not been met, the Company may offer to
sell a tranche not exceeding $400,000 of such Series D Preferred Stock to a
third party, free of any other restrictions, provided however, that such refusal
by Buyer shall not be deemed a waiver of the right by Buyer to purchase
subsequent tranches, or its entitlement to the Warrants in Paragraph 4(i)(d).
J. AVAILABLE SHARES. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield the number of Common Stock issuable at conversion as may be
required to satisfy the conversion rights of the Buyer pursuant to the terms and
conditions of the Preferred Stock.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the aggregate
purchase price for the Preferred Stock in accordance with Section 1(c) hereof,
the Company will irrevocably instruct its transfer agent to issue Common Stock
from time to time upon conversion of the Preferred Stock in such amounts as
specified from time to time by the Company to the transfer agent, bearing the
restrictive legend specified in Section 4(b) of this Agreement prior to
registration of the Shares under the 1933 Act, registered in the name of the
Buyer or its nominee and in such denominations to be specified by the Buyer in
connection with each conversion of the Preferred Stock. The Company warrants
that no instruction other than such instructions referred to in this Section 5.
The Registration Rights Agreement, and stop transfer instructions to give effect
to Section 4(a) hereof prior to registration and sale of the Shares under the
1933 Act will be given by the Company to the transfer agent and that the Shares
shall otherwise be freely transferable on the books and records of the Company
as to the extent provided in the Agreement, the Registration Rights Agreement,
and applicable law. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement to comply with all
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applicable securities laws upon resale of the Securities. If the Buyer provides
the Company with an opinion of counsel reasonably satisfactory to the Company
that registration of a resale by the Buyer of any of the Securities in
accordance with clause (1)(B) of Section 4(a) of this Agreement is not required
under the 1933 Act, the Company shall (except as provided in clause (2) of
Section 4(a) of this Agreement) permit the transfer of the Securities and, in
the case of the Shares, promptly instruct the Company's transfer agent to issue
one or more certificates for Common Stock in such name and in such denominations
as specified by the Buyer.
b. The Company will permit the Buyer to exercise its right to convert
the Preferred Stock and exercise the Warrants by telecopying an executed and
completed Notice of Conversion or Notice of Exercise to the Company and
delivering within three business days thereafter, the original Notice of
Conversion or Notice of Exercise and the certificate for the Preferred Stock
representing the Shares or the Warrant to the Company by express courier. Each
date on which a Notice of Conversion or Notice of Exercise is telecopied to and
received by the Company in accordance with the provisions hereof shall be deemed
a Conversion Date. The company will immediately confirm receipt of such notice
by telecopy and transmit the certificates representing the Shares of Common
Stock issuable upon conversion of any Preferred Stock (together with the
Preferred Stock representing the Shares not so converted) to the Buyer via
express courier, within three business days after receipt by the company of the
original Notice of Conversion and the certificate for the Preferred Stock
representing the Shares to be converted (the "Delivery Date").
c. The Company understands that a delay in the issuance of the Shares
of Common Stock beyond the Delivery Date could result in economic loss to the
Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments, [not exceeding $200,000 per tranche], to the Buyer for late
issuance of Shares upon Conversion in accordance with the following schedule
(where "No. Business Days Late" is defined as the number of business days beyond
three (3) business days from Delivery Date:
Late Payment for Each $10,000 of Preferred Stock
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
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Business Day Late beyond
10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit a Buyer's right to
pursue actual damages for the Company's failure to issue and deliver Common
Stock to the Buyer. Furthermore, in addition to any other remedies which may be
available to the Buyer, 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 Delivery Date, the Buyer will be entitled to revoke the relevant Notice of
Conversion by delivering a notice to such effect to the Company whereupon the
Company and the Buyer shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion (and in such event,
the late payments described above shall not be due and payable).
6. DELIVERY INSTRUCTIONS.
The Series C Preferred Stock shall be delivered by the Company to the
Escrow Agent pursuant to Section 1(b) hereof on a delivery against payment basis
at the closing.
7. CLOSING DATE
The date and time of the issuance and sale of the Series C Preferred
Stock (the "Closing Date") and the date and time of the issuance and sale of the
Additional Preferred Stock (an "Additional Closing Date") shall occur no later
than 12:00 Noon, New York time on the second NYSE trading day after the
fulfillment or waiver of all Closing conditions pursuant to Sections 8 and 9, or
such other mutually agreed to time. The closing shall occur on such date at the
offices of the Escrow Agent. Notwithstanding anything to the contrary contained
herein, the Escrow Agent will be authorized to release the funds representing
the Purchase Price for the Preferred Stock or Additional Preferred Stock (as the
case may be), and to release the Preferred Stock or Additional Preferred Stock
(as the case may be) only upon satisfaction of the conditions set forth in
Section 8 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
The Buyer understands that the Company's obligation to sell the
Preferred Stock on the Closing Date and any Series D Preferred Stock on an
Additional Closing Date pursuant to this Agreement is conditioned upon:
A. The receipt and acceptance by the Company of Buyer's agreement, as
evidenced by its execution of this Agreement, to purchase at least Seven Hundred
Fifty Thousand ($750,000.00) Dollars in liquidation value of Series C Preferred
Stock (or such lesser amount as the Company, in its sole discretion, shall
determine);
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B. Delivery by the Buyer to the Escrow Agent of good funds as payment
in full of an amount equal to the purchase price for the Series C Preferred
Stock or Series D Preferred Stock (as the case may be) in accordance with
Section 1(c) hereof;
C. The accuracy on the Closing Date or Additional Closing Date (as the
case may be) of the representations and warranties of the Buyer contained in
this Agreement as if made on such date, and the performance by the Buyer on or
before such date of all covenants and agreements of the Buyer required to be
performed on or before such date;
D. There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Stock on the Closing Date and any Series D Preferred Stock on an
Additional Closing Date is conditioned upon:
A. Acceptance by Buyer of an Agreement for the sale of Preferred Stock,
as indicated by execution of this Agreement, and Buyer's and Company's execution
of the Registration Rights Agreement;
B. Delivery by the Company to the Escrow Agent of the Preferred Stock,
the Warrants, and the Series D Preferred Stock (as the case may be) in
accordance with this Agreement;
C. The accuracy in all material respects on the Closing Date or
Additional Closing Date (as the case may be) of the representations and
warranties of the Company contained in this Agreement as if made on such date,
and the performance by the Company on or before such date (as the case may be)
of all covenants and agreements of the Company required to be performed on or
before such date; and
D. On the Closing Date or Additional Closing Date the Buyer having
received an opinion of counsel for the Company, dated such date, in form, scope
and substance reasonably satisfactory to the Buyer, to the effect set forth in
ANNEX III attached hereto.
10. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with
laws of the State of Delaware. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City 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
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on forum non convenients, to the bringing of any such proceeding in such
jurisdictions. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. 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. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
11. NOTICES. Any notice required or permitted hereunder shall be given
in writing (unless otherwise specified herein) and shall be deemed effectively
given upon, (a) personal delivery, or (b) if advance copy is given by fax, upon
(i) seven business days after deposit in the United states Postal Service by
regular or certified mail, or (ii) three business days mailing by international
express courier, with postage and fees prepaid, addressed to each of the other
parties thereunto entitled at the following addresses, or at such other
addresses as a party may designate by ten days advance written notice to each of
the other parties hereto.
COMPANY: DynaGen, Inc.
99 Erie Street
Cambridge, Massachusetts 02139
Telecopier No. (617) 354-3902
with a copy to:
John M. Hession, Esq.
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, Massachusetts 02110
Telecopier No. (617) 248-7100
PURCHASER: At the address set forth on the signature page of this Agreement.
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Purchaser's
representations and warranties shall survive the execution and delivery hereof
of this Agreement and the delivery of the preferred Stock.
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed by
the Buyer or one of its officers thereunto duly authorized as of the date set
forth below.
NUMBER OF SHARES OF PREFERRED STOCK TO BE PURCHASED:
AGGREGATE PURCHASE PRICE OF SUCH PREFERRED STOCK: $750,000
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Stock Purchase
Agreement to be duly executed on its behalf this 21st day of August, 1997
C/O Endeavour Management Inc. ENDEAVOUR CAPITAL FUND S. A.
Address By: [illegible]
14/14 Divrei Chaim Street
Jerusalem 94479, Israel Shmuli Margulies -- Director
Telecopier: 972 2 582 4443 ----------------------------
Printed Name of Subscriber
British Virgin Islands
- ----------------------
Jurisdiction of Incorporation
or Organization.
This Agreement has been accepted as of the date set forth below.
DYNAGEN, INC.
By: /s/ Indu A. Muni
-------------------------------
Indu A. Muni
Title: President
Date: August 21, 1997
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ANNEX I
DYNAGEN, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES C PREFERRED STOCK
The undersigned officer of DynaGen, Inc., a corporation organized
and existing under the General Corporation Law of the State of Delaware, does
hereby certify that, pursuant to authority conferred by the Certificate of
Incorporation, as amended to date, and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, the Board of Directors
of DynaGen, Inc., on August 13, 1997, adopted a resolution providing for certain
powers, designations, preferences and relative, participating, optional or other
rights, and the qualifications, limitations or restrictions thereof, of certain
shares of Series C Preferred Stock, $.01 par value, of the Corporation, which
resolution is as follows:
RESOLVED: That, pursuant to the authority vested in the Board of
Directors of the Corporation and in accordance with the General Corporation Law
of the State of Delaware and the provisions of the Corporation's Certificate of
Incorporation, a series of 7,500 shares of the class of authorized Preferred
Stock, par value $.01 per share, of the Corporation is hereby created as the
Series C Preferred Stock, and that the designation and number of shares thereof
and the voting powers, preferences and relative, participating, optional and
other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof, are as set forth on Exhibit A attached
hereto.
EXECUTED as of this 14th day of August, 1997.
DYNAGEN, INC.
By: /s/ Indu A. Muni
-------------------------------
Indu A. Muni
President
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DESCRIPTION AND DESIGNATION OF SERIES C PREFERRED STOCK
1. DESIGNATION AND DEFINITIONS.
(a) DESIGNATION. A total of 7,500 shares of the Corporation's
previously undesignated Preferred Stock, $.01 par value, shall be designated as
the "Series C Preferred Stock." The original issue price per share of the Series
C Preferred Stock shall be $100.00 (the "ORIGINAL ISSUE PRICE").
(b) CERTAIN DEFINITIONS. As used herein, the following terms,
unless the context otherwise requires, have the following respective meanings:
(i) "AVERAGE QUOTED PRICE" means the average of the closing
bid price of the Common Stock of the Corporation as reported by the Nasdaq
SmallCap Market or Nasdaq National Market or, if the Corporation's Common Stock
is no longer traded on a Nasdaq market, such other exchange on which the
Corporation's Common Stock is then traded, for the five (5) Trading Days
immediately preceding any holder's Conversion Date, the Mandatory Conversion
Date (as defined in Section 5(c) below) or the date of the consummation or
closing of a Fundamental Change, as the case may be.
(ii) "COMMON STOCK" means the common stock, par value $.01
per share, of the Corporation.
(iii) "CONVERSION DATE" means each date on which the
Corporation receives by telecopy written notice in accordance with Section 5(i)
hereof from a holder of Series C Preferred Stock that such holder elects to
convert shares of its Series C Preferred Stock.
(iv) "FUNDAMENTAL CHANGE" means: (i) any sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Corporation; or (ii) any merger or consolidation to which the Corporation is a
party. Notwithstanding the foregoing, the following shall not be a Fundamental
Change: A merger or consolidation (a) to which the Corporation is a party; (b)
in which it is the surviving corporation and there is no resulting
reclassification of the outstanding Common Stock; and (c) after giving effect to
which, persons who were, immediately before the consummation or closing of such
merger or consolidation, holders of outstanding Common Stock will be the direct
or indirect owners of securities of the Corporation possessing, on a fully
diluted basis, at least seventy-five percent (75%) of the voting power of all
voting securities of the Corporation (excluding, for purposes of such
computation, any such person who also is a party to such merger or
consolidation).
(v) "ISSUE DATE" means, with respect to each share of
Series C Preferred Stock held by any holder, the date on which the Corporation
originally issued such share to such holder (regardless of the number of times
transfer of such share is made on the stock transfer books maintained by or for
the Corporation, and regardless of the number of certificates
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which may be issued to evidence such share, and irrespective of any subsequent
transfer or other disposition of such share to any other holder).
(vi) "TRADING DAY" means a day on which the principal
national securities exchange on which the Common Stock is listed or admitted to
trading is open for the transaction of business; or, if the Common Stock is not
listed or admitted to trading on any national securities exchange but is listed
on the Nasdaq system (or such other trading system then in use by the National
Association of Securities Dealers, Inc.), a day on which such system is open for
the transaction of business; or, if the foregoing does not apply, any Business
Day.
2. DIVIDENDS.
(a) PREFERRED DIVIDEND - CASH AND/OR IN-KIND. When and as
declared by the Board of Directors and to the extent permitted by the General
Corporation Law of the State of Delaware, the Corporation shall pay preferential
dividends to the holders of the Series C Preferred Stock as provided in this
Section 2(a).
(i) PREFERRED DIVIDEND. Except as otherwise provided
herein, dividends on each share of Series C Preferred Stock shall accrue,
cumulatively, at the rate of seven percent (7.0%) per annum of the Original
Issue Price, from and including the Issue Date of such share to and including
the date on which the Liquidation Value of such share is paid or such share is
converted in accordance with the provisions hereof (the "PREFERRED DIVIDEND").
Such Preferred Dividend will accrue whether or not it has been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for its payment.
(ii) SEMI-ANNUAL PAYMENTS. Commencing on July 31, 1998, the
Preferred Dividend shall be payable in cash (subject to Section 2(a)(v) below)
semi-annually, for the actual number of days elapsed, on each July 31 and
January 31, to the holders of record of shares of Series C Preferred Stock as of
the tenth (10th) trading day preceding the applicable dividend payment date.
(iii) NO INTEREST. Accrued but unpaid Preferred Dividends
shall not bear interest. Preferred Dividends paid in cash in an amount less than
the total amount of such dividends at the time accrued and payable shall be
allocated on a share-by-share basis among all shares of Series C Preferred Stock
at the time outstanding.
(iv) PAYMENT UPON CONVERSION. On the date on which any
holder's shares of Series C Preferred Stock are converted into Common Stock
pursuant to Section 5 hereof, the accrued Preferred Dividend with respect to the
shares so converted shall be paid to such holder. All accrued Preferred
Dividends also shall be payable upon the liquidation, dissolution or winding up
of the Corporation.
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(v) PAYMENT IN COMMON STOCK. The Corporation, at its sole
discretion, may pay the Preferred Dividends in cash or in shares of Common Stock
at the then fair market value per share of Common Stock as of the date on which
the Preferred Dividend is payable. For purposes of this Section 2(a)(v), fair
market value shall be the average of the closing bid price of the Common Stock
of the Corporation as reported by the Nasdaq SmallCap Market or Nasdaq National
Market or, if the Corporation's Common Stock is no longer traded on a Nasdaq
market, such other exchange on which the Corporation's Common Stock is then
traded, for the ten (10) Trading Days immediately preceding the date on which
the Preferred Dividend is payable.
(vi) FRACTIONAL SHARES. Notwithstanding anything herein to
the contrary, no fractional shares shall be issued pursuant to this Section 2,
and the number of shares of Common Stock issued upon the payment of the
Preferred Dividend shall be rounded up or down to the nearest whole share.
(b) DECLARED DIVIDENDS ON COMMON STOCK. If the Board of
Directors shall declare a cash dividend payable upon the then outstanding shares
of Common Stock (other than a stock dividend on the Common Stock distributed
solely in the form of additional shares of Common Stock), the holders of the
Series C Preferred Stock shall be entitled to the amount of dividends on the
Series C Preferred Stock as would be declared payable on the largest number of
whole shares of Common Stock into which the shares of Series C Preferred Stock
held by each holder thereof could be converted pursuant to the provisions of
Section 5 hereof, such number determined as of the record date for the
determination of holders of Common Stock entitled to receive such dividend. Such
determination of "whole shares" shall be based upon the aggregate number of
shares of Series C Preferred Stock held by each holder, and not upon each share
of Series C Preferred Stock so held by the holder.
(c) DIVIDENDS ON OTHER SECURITIES. Subject to the foregoing
provisions of this Section 2, the Board of Directors may declare and the
Corporation may pay or set apart for payment, or cause the accrual of, stated or
cumulative dividends and other distributions on the Series A Preferred Stock or
the Series B Preferred Stock of the Corporation, or any other series of
preferred stock hereafter designated, and may purchase or otherwise redeem any
of the same (or any warrants, rights, options or other securities exercisable
therefor or convertible or exchangeable thereinto), and the holders of Series C
Preferred Stock shall not be entitled to share therein.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the Corporation designated to be junior to
the Series C Preferred Stock, and subject to the liquidation rights and
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preferences of any class or series of Preferred Stock designated by the Board of
Directors in the future to be senior to or on a parity with the Series C
Preferred Stock with respect to liquidation preferences, the holder of each
share of Series C Preferred Stock shall be entitled to be paid first out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings, an amount equal to the Original Issue Price per share of
Series C Preferred Stock held by any holder, plus the Preferred Dividend
accruing to the Series C Preferred Stock pursuant to Section 2 above (the
"LIQUIDATION VALUE"). For purposes hereof, the Series C Preferred Stock shall
rank on liquidation junior to the Series A Preferred Stock and on parity with
the Series B Preferred Stock.
If, upon liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of the Series C Preferred
Stock the full amount to which they otherwise would be entitled, the holders of
Series C Preferred Stock shall share ratably in any distribution of available
assets pro rata in proportion to the respective liquidation preference amounts
which would otherwise be payable upon liquidation with respect to the
outstanding shares of the Series C Preferred Stock if all liquidation preference
amounts with respect to such shares were paid in full, based upon the aggregate
Liquidation Value payable upon all shares of Series C Preferred Stock then
outstanding.
After such payment shall have been made in full to the
holders of the Series C Preferred Stock, or funds necessary for such payment
shall have been set aside by the Corporation in trust for the account of holders
of the Series C Preferred Stock so as to be available for such payment, the
remaining assets available for distribution shall be distributed ratably among
the holders of the Common Stock and any class or series of capital stock
designated to be junior to the Series C Preferred Stock (if any) in right of
payment upon any liquidation, dissolution or winding up of the Corporation.
The amounts set forth above shall be subject to equitable
adjustment by the Board of Directors whenever there shall occur a stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Series C Preferred Stock.
(b) DISTRIBUTIONS OTHER THAN CASH. Whenever the
distributions provided for in this Section shall be payable in property other
than cash, the value of such distribution shall be the fair market value of such
property as determined in good faith by the Board of Directors. All
distributions (including distributions other than cash) made hereunder shall be
made pro rata to the holders of Series C Preferred Stock.
(c) EVENTS NOT DEEMED A LIQUIDATION. Neither the merger or
consolidation of the Corporation into or with any other corporation(s), nor the
sale or transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation, will be deemed to be a
liquidation, dissolution or winding up of the Corporation
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under this Section 3.
4. VOTING POWER.
(a) GENERAL. Except as otherwise expressly provided in this
Section 4 or as otherwise required by the General Corporation Law of the State
of Delaware, each holder of Series C Preferred Stock shall be entitled to vote
on all matters and shall be entitled to that number of votes equal to the
largest number of whole shares of Common Stock into which such holder's shares
of Series C Preferred Stock could be converted, pursuant to the provisions of
Section 5 hereof, at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise expressly required by law, the holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Common
Stock shall vote together (or render written consents in lieu of a vote) as a
single class on all matters submitted to the stockholders of the Corporation.
Such determination of "whole shares" shall be based upon the
aggregate number of shares of Series C Preferred Stock held by each holder, and
not upon each share of Series C Preferred Stock so held by the holder.
(b) AMENDMENTS TO CHARTER. For so long as there are any
shares of Series C Preferred Stock outstanding, the Corporation shall not amend
its Certificate of Incorporation or this Certificate of Designation without the
approval, by vote or written consent, of the holders of at least a majority of
the then outstanding shares of Series C Preferred Stock, voting together as a
class, each share of Series C Preferred Stock to be entitled to one vote in each
instance, if such amendment would adversely affect the rights of the holders of
Series C Preferred Stock. Without limiting the generality of the foregoing, the
creation, or increase in the authorized number of shares, of any class or series
of stock ranking prior to or on a parity with the Series C Preferred Stock
either as to dividends or upon liquidation shall be deemed to adversely affect
the rights of the holders of Series C Preferred Stock for purposes of this
Section 4(b).
5. CONVERSION RIGHTS.
(a) CONVERSION AT THE OPTION OF HOLDERS. Each holder of
Series C Preferred Stock shall have the right, at such holder's option, to
convert at any time any of the shares of Series C Preferred Stock held by such
holder into such number of fully paid and nonassessable shares of Common Stock
as shall be determined by multiplying the number of shares of Series C Preferred
Stock to be converted by a fraction, the numerator of which is the Original
Issue Price, and the denominator of which is the applicable Conversion Price (as
defined below).
(b) CONVERSION PRICE. The conversion price per share (the
"CONVERSION PRICE") shall be equal to the lesser of subsections (i) and (ii)
below.
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(i) One hundred twenty-five percent (125%) of the
average of the closing bid price of the Common Stock of the Corporation as
reported by the Nasdaq SmallCap Market or Nasdaq National Market or, if the
Corporation's Common Stock is no longer traded on a Nasdaq market, such other
exchange on which the Corporation's Common Stock is then traded, for the five
(5) Trading Days immediately preceding the Issue Date.
(ii) (A) Beginning on the 60th day after the Issue Date
and ending on the 150th day after the Issue Date, eighty percent (80%) of the
Average Quoted Price;
(B) Beginning on the 151st day after the Issue Date
and ending on the 210th day after the Issue Date, seventy-eight percent (78%) of
the Average Quoted Price;
(C) Beginning on the 211th day after the Issue Date
and ending on the 365th day after the Issue Date, seventy-six percent (76%) of
the Average Quoted Price; and
(D) Beginning on the 366th day after the Issue
Date, seventy- four (74%) of the Average Quoted Price.
(c) CONVERSION AT OPTION OF CORPORATION. At any time after the
close of business on the one (1) year anniversary of the date on which the
Securities and Exchange Commission declares effective the registration statement
registering the shares of Common Stock issuable upon conversion of the Series C
Preferred Stock, all of the shares of Series C Preferred Stock shall be
convertible, at the option of the Corporation, into such number of fully paid
and nonassessable shares of Common Stock as shall be determined by multiplying
the number of shares of Series C Preferred Stock outstanding on the Mandatory
Conversion Date (as defined below) by a fraction, the numerator of which is the
Original Issue Price, and the denominator of which is the applicable Conversion
Price.
The Corporation shall give notice of its exercise of such
conversion option to all holders of Series C Preferred Stock no later than five
(5) Trading Days before the date as of which the Corporation has elected to make
such conversion effective (such effective date of the conversion, the "MANDATORY
CONVERSION DATE"). Each holder of Series C Preferred Stock as of the Mandatory
Conversion Date shall, promptly after such date, surrender for conversion to the
Corporation at its principal office or to any transfer agent for the Series C
Preferred Stock or the Common Stock all certificates representing all shares of
Series C Preferred Stock held by such holder, accompanied by a written notice
specifying the name or names in which such holder wishes the certificate(s) for
shares of Common Stock to be issued.
Effective as of the close of business on the Mandatory
Conversion Date, each share of Series C Preferred Stock then outstanding shall
be (and be deemed to have been) converted automatically, without any further
action by the holders thereof, into shares of Common Stock. Such conversion
shall be deemed to have occurred whether or not the certificates representing
such shares are surrendered to the Corporation or its transfer agent.
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(d) LIMITATION ON NUMBER OF SHARES. Additionally,
notwithstanding anything set forth in this Section 5 to the contrary, in no
event shall any holder of Series C Preferred Stock, prior to earlier to occur of
the Mandatory Conversion Date or the date of the consummation or closing of a
Fundamental Change, be entitled to convert Series C Preferred Stock into shares
of Common Stock to the extent that (x) the number of shares of the Corporation's
Common Stock beneficially owned by such holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the shares of Series C Preferred Stock
held by such holder) plus (y) the number of shares of Common Stock issuable upon
such conversion would result in beneficial ownership by the holder and its
affiliates of more than 4.9% of the shares of Common Stock then outstanding. For
purposes of this Section 5(d), beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D and 13G promulgated thereunder, except as otherwise
provided in clause (x) of this Section 5(d). Each holder shall, upon delivering
to the Corporation a notice of election to convert shares of Series C Preferred
Stock in accordance with Section 5(i) hereof, be required to provide the
Corporation with a certification in form and substance reasonably satisfactory
to the Corporation, that the conversion of the Series C Preferred Stock being
converted will not result in such holder and its affiliates beneficially holding
more than 4.9%, determined as heretofore provided, of the outstanding shares of
Common Stock on such Conversion Date. If the holder cannot make such
certification, the shares of Series C Preferred Stock to be converted shall not
be convertible. Notwithstanding the foregoing, upon the Mandatory Conversion
Date or upon the consummation or closing of a Fundamental Change, all such
shares of Series C Preferred Stock then outstanding shall be converted into
Common Stock in accordance with Section 5(c) or 5(g), as applicable.
(e) DIVIDENDS OTHER THAN COMMON STOCK DIVIDENDS. In the event
the Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution (other than a distribution in liquidation or other distribution
otherwise provided for herein) with respect to the Common Stock payable in (i)
securities of the Corporation other than shares of Common Stock, or (ii) other
assets (excluding cash dividends or distributions), then and in each such event
provision shall be made so that the holders of the Series C Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the number of securities or such other assets
of the Corporation which they would have received had their Series C Preferred
Stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities or such other assets receivable by
them during such period, giving application to all other adjustments called for
during such period under this Section 5 with respect to the rights of the
holders of the Series C Preferred Stock.
(f) CAPITAL REORGANIZATION OR RECLASSIFICATION. If the Common
Stock issuable upon the conversion of the Series C Preferred Stock shall be
changed into the same or different number of shares of any class or classes of
capital stock, whether by capital
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reorganization, recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend provided for elsewhere in
this Section 5, or the sale of all or substantially all of the Corporation's
capital stock or assets to any other person), then and in each such event the
holders of Series C Preferred Stock shall have the right thereafter to convert
such shares into the kind and amount of shares of capital stock and other
securities and property receivable upon such reorganization, recapitalization,
reclassification or other change by the holders of the number of shares of
Common Stock into which such shares of Series C Preferred Stock might have been
converted immediately prior to such reorganization, recapitalization,
reclassification or change, all subject to further adjustment as provided
herein.
(g) MANDATORY CONVERSION - FUNDAMENTAL CHANGE. If any
Fundamental Change shall occur, then each share of Series C Preferred Stock
outstanding as of the date of the consummation or closing thereof shall be (and
be deemed to have been) converted automatically, without any further action by
the holders thereof, into such number of fully paid and nonassessable shares of
Common Stock as shall be determined by multiplying the number of shares of
Series C Preferred Stock outstanding on the on the date of such consummation or
closing date by a fraction, the numerator of which is the Original Issue Price,
and the denominator of which is the applicable Conversion Price. Such conversion
shall be deemed to have occurred whether or not the certificates representing
such shares are surrendered to the Corporation or its transfer agent.
The Corporation shall give notice of a proposed or anticipated
Fundamental Change to all holders of the Series C Preferred Stock not later than
thirty (30) days before the expected closing or consummation of such Fundamental
Change, provided that at all times during such thirty-day period a registration
statement shall be in effect to permit the registration of the Common Stock
issuable upon conversion of the Series C Preferred Stock under the Securities
Act of 1933, as amended. The Corporation also shall give prompt notice of the
closing or consummation of such Fundamental Change to all holders of record of
the Series C Preferred Stock as of the date of such closing or consummation.
Each holder of Series C Preferred Stock shall thereupon promptly surrender for
conversion, to the Corporation at its principal office or to any transfer agent
for the Series C Preferred Stock or the Common Stock, all certificates
representing all shares of Series C Preferred Stock held by such holder,
accompanied by a written notice specifying the name or names in which such
holder wishes the certificate(s) for shares of Common Stock to be issued.
(h) CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Original Issue Price, the
Corporation at its expense will furnish each holder of Series C Preferred Stock
so affected with a certificate prepared by an officer of the Corporation,
showing such adjustment or readjustment, and stating in detail the facts upon
which such adjustment or readjustment is based.
(i) EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege, a holder of Series C Preferred Stock shall give written
notice by telecopy to the
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Corporation at its principal office that such holder elects to convert shares of
its Series C Preferred Stock and shall thereafter surrender the original
certificate(s) representing the shares being converted to the Corporation at its
principal office together with an originally executed copy of such notice. Such
notice shall also state the name or names (with its address or addresses, as
well as the address(es) for delivery) in which the certificate(s) for shares of
Common Stock issuable upon such conversion shall be issued. The certificate(s)
for the shares of Series C Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Corporation or in blank. As
promptly as practicable after the Corporation receives the original
certificate(s) for the shares of Series C Preferred Stock surrendered for
conversion, the proper assignment thereof to the Corporation or in blank and the
original notice of conversion (collectively, the "ORIGINAL DOCUMENTATION"), but
in no event more than three (3) Trading Days after the Corporation's receipt of
the Original Documentation, the Corporation shall issue and shall deliver to the
holder of the shares of Series C Preferred Stock being converted, at the
addresses set forth therefor by the holder, such certificate(s) as it may
request for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Series C Preferred Stock in accordance with the
provisions of this Section 5, and cash, as provided in Section 5(j), in respect
of any fraction of a share of Common Stock issuable upon such conversion. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on the Conversion Date, and at such time the rights of the holder as
holder of the converted shares of Series C Preferred Stock shall cease and the
person(s) in whose name(s) any certificate(s) for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder(s) of
record of the shares of Common Stock represented thereby. If the Corporation
fails to issue and deliver to such holder such certificate(s) for shares of
Common Stock within three (3) Trading Days after the Corporation's receipt of
the Original Documentation, the Corporation shall pay the liquidated damages set
forth in the Stock Purchase Agreement between the Corporation and the initial
purchasers of the Series C Preferred Stock.
(j) CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series C Preferred Stock. Instead of any fractional
shares of Common Stock that would otherwise be issuable upon conversion of
Series C Preferred Stock, the Corporation shall pay to the holder of the shares
of Series C Preferred Stock being converted a cash adjustment in respect of such
fractional shares in an amount equal to the same fraction of the market price
per share of the Common Stock (as determined in a reasonable manner prescribed
by the Board of Directors) at the close of business on the Conversion Date. The
determination as to whether or not any fractional shares are issuable shall be
based upon the aggregate number of shares of Series C Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series C
Preferred Stock being converted.
(k) PARTIAL CONVERSION. In the event some but not all of the
shares of Series C Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series C Preferred Stock
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which were not converted. Such new certificate shall be so delivered on or prior
to the date set forth in Section 5(i) for the delivery of certificates for
shares of Common Stock.
(l) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series C Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series C Preferred Stock (including any shares of
Series C Preferred Stock represented by any warrants, options, subscription or
purchase rights for the Series C Preferred Stock), and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series C Preferred
Stock (including any shares of Series C Preferred Stock represented by any
warrants, options, subscriptions or purchase rights for the Series C Preferred
Stock), then the Corporation shall be deemed to be in breach and default of its
obligations hereunder, and in addition to all charges, claims and rights at law
or in equity that each holder shall be entitled to, the Corporation shall use
all means reasonably available to it, and promptly take any and all actions as
may be necessary, to increase its authorized but unissued shares of Common Stock
to such number of shares as shall be sufficient for such purpose.
6. REDEMPTION AND REPURCHASE RIGHTS. The Corporation shall have no
right to redeem, and holders of shares of Series C Preferred Stock shall have no
right to cause the Corporation to redeem, any or all of the outstanding shares
of Series C Preferred Stock.
7. NOTICES OF RECORD DATE. In the event of any:
(a) taking by the Corporation of a record of the holders of
any class of 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 capital stock of any
class or any other securities or property, or to receive any other right, or
(b) capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or
(c) voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, then and in each such event the Corporation shall
telecopy and thereafter mail or cause to be mailed to each holder of Series C
Preferred Stock 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 a
description of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange
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their shares of Common Stock (or other securities) for securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be telecopied and thereafter mailed by first class
mail, postage prepaid, or by express overnight courier service, at least ten
(10) days prior to the date specified in such notice on which such action is to
be taken.
8. GENERAL.
(a) REPLACEMENT OF CERTIFICATES. Upon the Corporation's
receipt, from the holder of any certificate evidencing shares of Series C
Preferred Stock, of evidence reasonably satisfactory to the Corporation (an
affidavit of such holder will be satisfactory) of the ownership and the loss,
theft, destruction or mutilation of such certificate, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation, and in the case of any such mutilation, upon
surrender of such certificate, the Corporation (at its expense) shall execute
and deliver to such holder, in lieu of such certificate, a new certificate that
represents the number of shares represented by, is dated the date of, is issued
in the name of the holder of, and is substantially identical in form of, such
lost, stolen, destroyed or mutilated certificate.
(b) PAYMENT OF TAXES. The Corporation shall pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed in connection with the issuance or delivery of any shares of Common
Stock (or other of the Corporation's securities) that results from (i) the
conversion of shares of Series C Preferred Stock pursuant to this Certificate of
Designations or (ii) the application of Section 2(a)(v) hereof. Notwithstanding
the foregoing, if the Corporation, pursuant to a notice from a holder of any
shares of Series C Preferred Stock, effects the issuance or delivery of any
shares of Common Stock (or other of the Corporation's securities) in any name(s)
other than such holder's name, then such holder shall deliver to the Corporation
with the aforesaid notice (A) all transfer taxes and other governmental charges
payable upon the issuance or delivery of securities in such other name(s) or (B)
evidence satisfactory to the Corporation that such taxes and charges have been
or shall be paid in full.
(c) STATUS OF REDEEMED OR CONVERTED SHARES. Shares of Series C
Preferred Stock that are redeemed, converted or otherwise acquired by the
Corporation in any manner (including by purchase or exchange) shall be canceled
and upon cancellation (i) shall no longer be deemed to be outstanding, (ii)
shall become authorized but unissued shares of preferred stock undesignated as
to series and (iii) may be reissued as part of another series of preferred
stock.
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ANNEX II
JOINT ESCROW INSTRUCTIONS
Dated as of the date of the Securities
Purchase Agreement to
Which These Joint Escrow
Instructions Are Attached
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Attention: Samuel M. Krieger, Esq.
Dear Mr. Krieger:
As escrow agent for both DynaGen, Inc., a Delaware corporation (the
"Company"), and the Purchaser (the "Purchaser") of Series C and the Series D
Preferred Stock of the Company (the "Series C Preferred Stock" and the "Series D
Preferred Stock"), who is named in the Securities Purchase Agreement between the
Company and the Purchaser to which a copy of these Joint Escrow Instructions is
attached as Annex II (the "Agreement"), you (hereafter the "Escrow Agent") are
hereby authorized and directed to hold the documents and funds (together with
any interest thereon, the "Escrow Funds") delivered to the Escrow Agent pursuant
to the terms of the Agreement in accordance with the following instructions:
1. The Escrow Agent shall, as promptly as feasible, notify the
Company of receipt of the purchase price from the Purchaser, and notify the
Purchaser (or such agent as the Purchaser may designate in writing) of receipt
of the Series C Preferred Stock and Series D Preferred Stock being purchased for
such purchase price. Within not more than two (2) days of receipt of written
notice from the Company and the Purchase that the respective conditions
precedent to the purchase and sale have been satisfied (which notice shall not
be unreasonably withheld), the Escrow Agent shall, after reduction by the
amounts referred to in the next succeeding sentence of this paragraph, release
the Escrow Funds to or upon the order of the Company, and shall release the
Preferred Stock to the Purchaser. After receipt of such notice, a portion of the
Escrow Funds shall be released by the Escrow Agent as follows: an amount equal
to nine (9%) percent of the purchase price of the Preferred Stock shall be
released to Jesup and Lamont, and $5,000 for tranche I and $500 for each
additional tranche of the Escrow Funds to the Escrow Agent. If a certificate
representing such Preferred Stock is not deposited with the Escrow Agent with
ten (10) days after receipt by the Company of notice of receipt by the Escrow
Agent of the funds from the Purchaser, Escrow Agent shall notify the Purchase
and Purchaser shall be entitled to cancel the subscription and demand repayment
of the funds. If such funds are not deposited with the Escrow Agent within ten
(10) days after receipt by the Purchaser of notice
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of receipt by the Escrow Agent of such stock certificate from the Company,
Escrow Agent shall notify the Company and the Company shall be entitled to
cancel the subscription and demand return of such stock certificate. If the
Company or the Purchaser notifies the Escrow Agent that on the Closing Date or
Additional Closing Date (as defined in the Agreement) the conditions precedent
to the obligations of the Company or the Purchaser, as the case may be, under
the Agreement were not satisfied or waived, then the Escrow Agent shall return
the Escrow Funds to the Purchaser and shall return the such stock certificate to
the Company. Prior to return of the Escrow Funds to the Purchaser, the Purchaser
shall furnish such tax reporting or other information as shall be appropriate
for the Escrow Agent to comply with applicable United States law. The Escrow
Agent shall deposit all funds received hereunder in the Escrow Agent's attorney
escrow account at The Bank of New York.
2. The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by the Company, the Purchaser and
the Escrow Agent.
3. The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed by the Escrow Agent to be genuine and to have been signed or presented
by the proper party or parties. The Escrow Agent shall not be personally liable
for any act the Escrow Agent may do or omit to do hereunder as Escrow Agent
while acting in good faith, except for fraud, willful misconduct, or gross
negligence, and any act done or omitted by the Escrow Agent pursuant to the
advice of the Escrow Agent's attorney-at-law shall be evidence of such good
faith.
4. The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
5. The Escrow Agent shall not be liable in any respect on account of
the identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
6. The Escrow Agent shall be entitled to employ such legal counsel
and other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for Purchase
(as that term is defined in the Agreement) in connection with the Agreement and
may continue to act as legal counsel for Purchaser, from time to time,
notwithstanding its duties as Escrow Agent hereunder.
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7. The Escrow Agent's responsibilities as Escrow Agent hereunder
shall terminate if the Escrow Agent shall resign by written notice to the
Company and the Purchaser. In the event of any such resignation, the Purchaser
and the Company shall appoint a successor Escrow Agent.
8. If the Escrow Agent reasonably requires other or further
instruments in connection with these Joint Escrow Instructions or obligations in
respect hereto, the necessary parties hereto shall join in furnishing such
instruments.
9. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the documents
or Escrow Funds held by the Escrow Agent hereunder, the Escrow Agent is
authorized and directed in the Escrow Agent's sole discretion (1) to retain in
the Escrow Agent's possession without liability to anyone all or any part of
said documents or Escrow Funds until such disputes shall have been settled
either by mutual written agreement of the parties concerned or by a final order,
decree or judgment of a court of competent jurisdiction after the time for
appeal has expired and no appeal has been perfected, but the Escrow Agent shall
be under not duty whatsoever to institute or defend any such proceedings or (2)
to deliver the Escrow Funds and any other property and documents held by the
Escrow Agent hereunder to a state or federal court having competent subject
matter jurisdiction and located in the State and City of New York in accordance
with the applicable procedure therefor.
10. The Company and the Purchaser agree jointly and severally to
indemnify and hold harmless the Escrow Agent from any and all claims,
liabilities, costs or expenses in any way arising from or relating to the duties
or performance of the Escrow Agent hereunder other than any such claim,
liability, cost or expense to the extent the same shall have been determined by
final, unappealable judgment of a court of competent jurisdiction to have
resulted from fraud, gross negligence or willful misconduct of the Escrow Agent.
11. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given upon personal delivery or three business days after deposit in the United
States Postal Service, by registered or certified mail with postage and fees
prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
days advance written notice to each of the other parties hereto.
COMPANY: DynaGen, Inc.
99 Erie Street
Cambridge, Massachusetts 02139
Telecopier No. (617) 354-3902
with a copy to:
John M. Hession, Esq.
Testa, Hurwitz, Thibeault, LLP
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High Street Tower
125 High Street
Boston, Massachusetts 02110
Telecopier No. (617) 248-7100
PURCHASER: At the address set forth on the signature page of the
Agreement.
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
12. By signing these Joint Escrow Instructions, the Escrow Agent
becomes a party hereto only for the purpose of these Joint Escrow Instructions;
the Escrow Agent does not become a party to the Agreement. The Company and the
Purchaser have become parties hereto by their execution and delivery of the
Agreement, as provided therein.
13. This instrument shall be binding upon and inure to thebenefit of
the parties hereto, and their respective successors and permitted assigns and
shall be governed by the laws of the State of New York without giving effect to
principles governing the conflicts of laws. A facsimile transmission of these
instructions signed by the Escrow Agent shall be legal and binding on all
parties hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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14. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided in the Agreement.
ACCEPTED BY ESCROW AGENT: DYNAGEN, INC.
KRIEGER & PRAGER
By: /s/ Samuel Krieger By: /s/ Dhananjay G. Wadekar
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ANNEX III
To the Purchaser (the "Purchaser")
listed on the signature page to the
Stock Purchase Agreement dated as of
August 2l, l997 between DynaGen,
Inc.and the Purchaser
We have acted as counsel to DynaGen, Inc., a Delaware corporation (the
"Company"), the connection with the Stock Purchase Agreement, dated as of August
2l, l997 between you and the Company (the "Purchase Agreement"), relating to the
issuance and sale by the Company of up to 7,500 shares f its Series C Preferred
Stock (the "Series C Stock"), up to 60,000 shares of its Series D Preferred
Stock (the "Series D Stock") and a warrant to purchase 250,000 shares f the
Company's Common Stock (the "Initial Warrant"). Such shares of Series C Stock
and Series D Stock are sometimes hereinafter referred to collectively as the
"Preferred Shares." This opinion is furnished to you pursuant to Section 9(d) of
the Purchase Agreement. Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to them in the Purchase Agreement.
We have made such inquiry of the officers of the Company and have
examined such corporate and other records, documents, agreements and
instruments, certificates of officers of the Company and of public officials and
have examined such question so flaw as we have deemed necessary or appropriate
for the purpose of this opinion. In rendering this opinion, we have relied, as
to all questions of fact material to this opinion, upon certificates of public
officials, the Company's transfer agent and officers of the Company and upon the
representations and warranties may by the Purchaser and the Company in the
Purchase Agreement. We have assumed the genuineness of all signatures (other
than those on behalf of the Company) and the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as copies, whether certified or not, the authenticity
of the originals of such latter documents and the legal capacity of all natural
persons.
For purposes of this opinion, we have also assumed:
(A) the due and proper authorization, execution, acknowledgment
and delivery by the Purchaser of the Purchase Agreement and
all other documents executed by the Purchaser in connection
therewith (collectively, the "Operative Agreements");
(B) that the Purchaser is duly organized, validly existing and in
good standing in its country of formation;
(C) that the Purchaser has full power, authority and legal right
under the laws of its country of formation to execute and
deliver the Operative Agreements and to consummate the
transactions contemplated thereby; and
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(D) that the Operative Agreements and the transactions evidenced
thereby are valid, binding and enforceable against the
Purchaser in accordance with their terms, and that the
consummation of the transactions and the funding contemplated
by the Operative Agreements comply with all laws applicable to
the Purchaser.
Whenever in this opinion we use the term "to our knowledge," we are
referring to the attorneys in our firm who have given substantive legal
attention to representation of the Company in connection with the transaction
contemplated pursuant to the Purchase Agreement. Our opinions given herein are
qualified by the above limits to the scope of our representation and due
diligence and the subsequent assumptions, limitations and qualification s
contained herein.
This opinion is based upon our knowledge of the facts as of the date
hereof and assumes no event will take place in the future which would affect the
opinions set forth herein other than future events contemplated by the Operative
Agreements, the Initial Warrant and the additional warrant issuable pursuant to
Section 4(i) of the Purchase Agreement (the "Additional Warrant," and together
with the Initial Warrant, the "Warrants"). We assume no duty to communicate with
you with respect to any change in law or facts which comes to our attention
hereafter..
We have not made an independent review of the laws of any state or
jurisdiction other than those of the Commonwealth of Massachusetts and the
United States, and the General Corporation Law of the State of Delaware.
Accordingly, we express no opinion herein with respect to the laws of any state
or jurisdiction other than those of the Commonwealth of Massachusetts, the
United States and the General Corporation Law of the State of Delaware. For the
purposes of this opinion, we have assumed that the facts and law governing the
performance by the Company under the Operative Agreements and the Warrants will
be identical to the facts and law governing such performance as of the date of
this opinion.
The opinions hereinafter expressed are qualified to the extent that the
validity or enforceability of any of the agreements, documents or obligations
referred to herein may be subject to or affected by (i) statutory or decisional
law (including but not limited to Sections l60, l70 and l74 of the General
Corporation Law of the State of Delaware) that may prohibit or restrict the
payment of any dividends on, or redemption or purpose by the Company of, the
Common Stock or any series of Preferred Stock, if such payment of dividends or
purchase or redemption would impair the capital of the Company, be paid out of
funds other than surplus or net profits, or render the Company insolvent, or if
the Company is insolvent or is capital is impaired at the time of such desired
payment, purchase or redemption; (ii) applicable bankruptcy, insolvency,
fraudulent conveyance and transfer, reorganization, moratorium or similar laws
affecting the rights and remedies of creditors general; (iii) principles
affording traditional equitable defenses (e.g., waiver, duress, laches and
estoppel) as applied to a party seeking enforcement, and (iv) requirements of
good faith and fair dealing in the performance and enforcement of an agreement
on the part of a party seeking enforcement after the agreement has been entered
into. The
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opinions hereinafter expressed are also qualified to the extent that the
availability of the remedy of specific performance or of injunctive or other
equitable relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
The opinions hereinafter expressed are also subject to the
qualification that we render no opinion as to the validity or enforceability of
(i) any provisions of the Operative Documents or the Warrants regarding any
choice of law or consent to jurisdiction clauses and (ii) any liquidated damages
provisions contained in the Purchase Agreement, in the Company's Certificate of
Designations, Preferences and Rights of Series C Preferred Stock or Certificate
of Designations, Preference and Rights of Series D Preferred Stock or in any of
the Operative Documents.
We express no opinion as to compliance by the Company with the
so-called "blue sky" or state securities laws in connection with the issuance
and sale of the Series C Stock, the Series D Stock or the Warrants or the
issuance of shares of Common Stock upon the conversion of the Series C Stock or
Series D Stock or exercise of the Warrants, as the case may be.
In rendering the opinion expressed in paragraph l below with respect to
the legal existence and good standing of the Company in Delaware and
Massachusetts, we have relied solely upon a certificate received from the
Secretary of State of each such state. In rendering the opinion expressed in
paragraph 6 below with respect to the timely filing of the Company's periodic
reports on Forms l0-Q and l0-K, we have relied solely on a review of the EDGAR
database maintained by the Securities and Exchange Commission (the "SEC") as t
the timing of such filings with the SEC. With respect to our opinion in
Paragraph 7 below, we call your attention to the fact that we have not caused
any search to be made of any court or other governmental records.
We express no opinion as to the validity or enforceability of the
indemnification and contribution provisions contained in Section 6 and 7 or the
Registration Rights Agreement and, with respect to the performance by the
Company of its obligations under the Registration Rights Agreement, we assume
compliance by the Company at such time with the registration requirements of the
Securities Act and with applicable state securities laws.
Based upon and subject to the foregoing, we are of the opinion that:
l. The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of
Delaware and is duly qualified to do business as a foreign
corporation in the Commonwealth of Massachusetts.
2. The authorized capital stock of the Company consists of
75,000,000 shares of Common Stock, $.0l par value per share
(the "Common Stock:), and l0,000,000 shares of preferred
stock, 50,000 of which shares have been designated Series A
Preferred Stock, $.0l par value per share, 7,500 of which
shares have been designated Series B Preferred Stock, $.0l par
value per share, 7,500 shares of which shares have been
designated Series C Preferred Stock, $.0l par value per
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share and 60,000 of which shares have been designated Series D
Preferred Stock, $.0l par value per share.
3. The Common Stock is registered pursuant to Section l2 of the
Securities Exchange Act of l934, as amended (the "Exchange
Act") and, to our knowledge, the Company has timely filed with
the SEC its periodic reports on Forms l0-Q and l0- K pursuant
to Section l3(a) of the Exchange Act for a period of at least
twelve months preceding the date hereof.
4. When delivered to you or upon your order against payment of
the agreed consideration therefor in accordance with the
provisions of the Purchase Agreement, the Company's
Certificate of Incorporation (as to the shares of Common Stock
issuable upon conversion of the Preferred Shares) and the
Warrants (as to the shares of Common Stock issuable upon
exercise of the Warrants), the Series C Stock, the Series D
Stock, the share of Common Stock issuable upon conversion of
the Preferred Shares and the shares of Common Stock issuable
upon conversion of the Preferred Shares and the shares f
Common Stock issuable upon exercise of the Warrants (i) will
be duly authorized and validly issued, (ii) will be fully paid
and nonassessable, (iii) to our knowledge, will not have been
issued or sold in violation of any preemptive or other similar
rights of the holder of any securities of the Company, and
(iv) will not subject the holders thereof to personal
liability by reason of being such holders.
5. The Company has the requisite corporate power and authority
necessary to enter into the Operative Agreements and to issue
the Series C Stock, the Series D Stock, and the Warrants; each
of the Operative Agreements and the Warrants have been duly
and validly authorized by all corporate action by the Company
and, to our knowedge, no approval, consent, authorization or
order of any court, governmental agency or body or arbitrator
having juristiction over the Company or any of its
subsidiaries is required for the execution and delivery of
each of the Operative Agreements and the Warrants by the
Company or the consummation of the transactions contemplated
thereby; each of the Operative Agreements and the Initial
Warrant has been duly and validly executed and delivered by
and on behalf of the Company, and is a valid, legal
enforceable and binding obligation of the Company, enforceable
in accordance with its terms.
6. Neither the sale of the Series C Stock, the Series D Stock and
the Warrants, nor the performance of the Company's obligations
under the Operative Agreements and the Warrants by the
Company, will, except where such violation, conflict, breach
or default, singly or in the aggregate, would not have a
material adverse effect on the financial condition or business
of the Company and such violation, conflict, breach or default
would have no effect on the Company's the Certificate of
Incorporation or By-laws of the Company, (B) to our knowlege,
any decree,
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judgment, order, law, treaty, rule, regulation or
determination applicable to the Company of any court,
governmental agency or body, or arbitrator having jurisdiction
over the Company or over the properties or assets of the
Company, (C) to our knowledge, the terms of any bond,
debenture, note or any other evidence of indebtedness, or any
agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which
the Company is a party, by which the Company is bound, or to
which any of the properties of the Company is subject, or (D)
to our knowledge, the terms of any "lock-up" or similar
provision of any underwriting or similar agreement to which
the Company is a party.
7. To the best of our knowledge after due inquiry of the
executive officers of the Company, except as disclosed in the
Company's quarterly and annual reports under the Exchange Act,
there is no pending or threatened action, suit, proceeding or
investigation before any court, governmental agency or body,
or arbitrators having jurisdiction over the Company which
would adversely affect or prevent the performance by the
Company of its obligations under any of the Operative
Agreements and the Warrants.
8. Assuming the accuracy of, and compliance with, the
representations, warranties and covenants of the Purchaser in
the Operative Agreements, the Company may issue the Series C.
stock, the Series D Stock and the Initial Warrant pursuant to
the Purchase Agreement without registration under the
Securities Act.
9. Assuming (i) the accuracy of, and compliance with, the
representations, warranties and covenants of the Purchaser in
the Operative Agreements an (ii) that the Additional Warrant
was issuable as of the date hereof, the Company may issue the
Additional Warrant as of the date hereof pursuant to the
Purchase Agreement without registratin under the Securities
Act.
This opinion is limited to the matters expressly stated herein and is
rendered solely for your benefit and may not be quoted or relied upon for any
other purpose or by any other person for any reason.
Yours very truly,
TESTA, HURWITZ & THIBEAULT, LLP
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ANNEX IV
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of August 21,
1997 (this "Agreement") is made by and between DYNAGEN, INC., a Delaware
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Stock Purchase Agreement, dated as of August 21, 1997, between the Initial
Investor and the Company (the "Stock Purchase Agreement"), the Company has
agreed to issue and sell to the initial investor Shares of Series C Preferred
Stock and Series D Preferred Stock of the Company (collectively the "Preferred
Stock"), and warrants to purchase up to 250,000 shares of Common Stock (the
"Warrants") (which may be increased by an additional 300,000 warrants upon
certain circumstances (the "Additional Warrants") which Preferred Stock will be
convertible into shares of the common stock, $.01 par value (the "Common
Stock"), of the Company (the "Conversion Shares") upon the terms and subject to
the conditions of such Preferred Stock, and the Warrants will be exercisable for
shares of Common Stock (the "Warrant Shares"); and
WHEREAS, to induce the Initial Investor to execute and deliver
the Stock Purchase Agreement, 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
"Securities Act"), with respect to the Conversion Shares and Warrant Shares;
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
Initial Investor hereby agrees as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "Additional Warrant Shares" means the shares of Common
Stock issuable upon exercise of the Additional Warrants.
(ii) "Investor" means the Initial Investor and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
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<PAGE>
(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 the registration statement would be
detrimental to the business and affirms 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 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) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities 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").
(v) "Registerable Securities" means the Conversion Shares and
the Warrant Shares.
(vi) "Registration Statement" means a registration statement
of the Company under the Securities Act.
(b) Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Stock Purchase
Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare and file
with the SEC, no later than forty-five (45) days following the initial Closing
Date under the Stock Purchase Agreement, and the issuance of the Additional
Warrants, if issued, either a Registration Statement on Form S-3 registering for
resale by the Investor a sufficient number of shares of Common Stock for the
Initial Investors (or such lesser number as may be required by the SEC, but in
no event less than the number of shares into which the Preferred Stock would be
convertible and the Warrants exercisable at the time of filing of the Form S-3,
or an amendment to any pending Company Registration Statement on Form S-3, and
such Registration Statement or amended Registration Statement shall state that,
in accordance with Rule 416 and 457 under the Securities Act, it also covers
such indeterminate number of additional shares of Common Stock as may become
issuable upon conversion of the Preferred Stock and the Exercise of the Warrants
resulting from adjustment in the Conversion Price, or to prevent dilution
resulting from stock splits, or stock dividends). If at any time the number of
shares of Common Stock into which the Preferred Stock may be converted or the
Warrants or Additional Warrants, if issued, are exercisable, exceeds the
aggregate number of shares of Common Stock then
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<PAGE>
registered, the Company shall, within fifteen (15) business days after receipt
of a written notice from any Investor, either (i) amend the Registration
Statement filed by the Company pursuant to the preceding sentence, if such
Registration Statement has not been declared effective by the SEC at that time,
to register all shares of Common Stock into which the Preferred Stock may be
converted, or the Warrants or Additional Warrants if issued are exercisable, or
(ii) if such Registration Statement has been declared effective by the SEC at
that time, file with the SEC an additional Registration Statement on Form S-3 to
register the shares of Common Stock into which the preferred Stock may be
converted, or the Warrants or Additional Warrants, if issued, are exercisable,
that exceed the aggregate number of shares of Common Stock already registered.
If the state of the SEC determines that all of the Conversion Shares cannot be
registered by the Company for resale by the Investor because, in the view of the
staff, such registration would constitute a primary offering the Company, then
the Company shall have an additional sixty (60) days in which to amend such
registration statement to another available form.
(B) PAYMENTS BY THE COMPANY.
(i) If the Registration Statement covering the
Registrable Securities is not filed in proper form with the Securities and
Exchange Commission with forty-five (45) days after the Closing, the Company
will make payment to the Initial Investor in the amount of $500 per day for each
$10,000 in principal amount of Preferred Stock outstanding for each day
thereafter until such Registration Statement, in proper form, is filed with the
Securities and Exchange Commission.
(ii) If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not effective (x) on the earlier of (i) five days after notice
from the Securities and Exchange Commission that the Registration Statement may
be declared effective, or (ii) ninety (90) days following the initial Closing
Date (the "Initial Date"), (except as provided by the last sentence of Section
2a), or (y) on the conclusion of a Suspension Period as defined in P. 3f, then
the Company will make payments to the Initial Investor in such amounts and at
such times as shall be determined pursuant to this Section 2(b). The amount to
be paid by the Company to the Initial Investor shall be determined as of each
Computation Date, and such amount shall be equal to two and one-half (2 1/2%)
percent of the purchase price paid by the Initial Investor for all Preferred
Stock then purchased and outstanding pursuant to the Stock Purchase Agreement
for any period fro the Initial Date to the first Computation Date, and to each
Computation date thereafter, to the date the Registration Statement is declared
effective by the SEC (pro rated for partial periods) (the "Periodic Amount").
The full Periodic Amount shall be paid by the Company in immediately available
funds within three business days after each Computation Date. Notwithstanding
the foregoing, the amounts payable by the Company pursuant to this provision
shall not be payable to the extent any delay in the effectiveness of the
Registration Statement occurs because of an act of, or a failure to act or to
act timely by the Initial Investor
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<PAGE>
or its counsel, or in the event all of the Registrable Securities may be sold
pursuant to Rule 144 or another available exemption under the Act.
As used in this Section 2(b), the following terms shall have
the follow meanings:
"Computation Date" means the date which is the earlier of (i)
five days after notice from the Securities and Exchange Commission that the
Registration Statement may be declared effective, or (ii) ninety (90) days after
the initial Closing Date (except as provided by the last sentence of Section
2(a)), and, if the Registration Statement required to be filed by the Company
pursuant to Section 2(a) has not theretofore been declared effective by the SEC
or a Suspension Period is in effect, each date which is thirty (30) days after
the previous Computation Date (pro rated for partial periods) until such
Registration Statement is so declared effective.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall do each of the
following.
(a) Prepare promptly, and file with the SEC by forty-five (45)
days after the initial Closing Date, a Registration Statement with respect to
not less than the number of Registrable Securities provided in Section 2(a),
above, and thereafter used its best efforts to cause each Registration Statement
relating to Registrable Securities to become effective on the earlier of (i)
five days after notice from the Securities and Exchange Commission that the
Registration Statement may be declared effective, or (b) ninety (90) days after
the Closing Date, and keep the Registration Statements effective at all times
until the earliest (the "Registration Period") of (i) the date that is two years
after the Closing Date (ii) the date when the Investors may sell all Registrable
Securities under Rule 144 or (iii) the date the Investors no longer own any of
the Registrable Securities, which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a materiel fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration Statement and all
amendments and supplements thereto as
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<PAGE>
reasonable period of time prior to their filing with the SEC, and not file any
document in a form to which such counsel reasonably objects;
(d) Furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel identified to the
Company (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one (1) copy of the Registration
Statement, each preliminary prospectus and prospectus, and each amendment or
supplement thereto, and (ii) such number of copies of a prospectus, and all
amendments and supplements thereto and such other documents, as such Investor
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor;
(e) As promptly as practicable after becoming aware of such
event, notify each investor of the happening of any event of which the Company
has knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) 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 Investors in writing of the existence of a Potential
Material Event, the Investors shall not offer or sell any Registerable 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 such 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 may not so suspend the right to such holders of Registrable Shares for
more than two (2) twenty (20) day periods in the aggregate during any 12-month
period with at least a ten (10) business day interval between such periods,
during the period the Registration Statement is required to be in effect;
(g) As promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC of a Notice of Effectiveness or any stop order or other
suspension of the effectiveness of the Registration Statement at the earliest
possible time;
(h) Use its commercially reasonable efforts to secure
designation of all the Registrable Securities covered by the Registration
Statement as a National Association of Securities Dealers Automated Quotations
System ("NASDAQ") "Small Capitalization" within
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<PAGE>
the meaning of Rule 11Aa2-1 of the SEC under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the quotation of the Registrable
Securities of the NASDAQ Small Cap Market; or if, despite the Company's
commercially reasonable efforts to satisfy the preceding clause, the Company is
unsuccessful in doing so, to secure NASDAQ/OTC Bulletin Board authorization and
quotation for such Registrable Securities and, without limiting the generality
of the foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities;
(i) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
(j) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Investors may reasonably request, and, within three (3) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver to the transfer agent for the Registrable
Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) an appropriate instruction and opinion
of such counsel; and
(k) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration the Registrable Securities, the Investors 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 a particular Investor that such Investor shall
furnish to the Company 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 such documents in
connection with such registration as the company may reasonably request. At
least five (5) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Investment") if such Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. If at least two (2) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive
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<PAGE>
Investor"), then the company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor;
(b) Each Investor by such 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, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(e)
or 3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. EXPENSES OF REGISTRATION. All reasonable expenses (other
that underwriting discounts and commissions incurred in connection with
registrations, filings or qualification pursuant to Section 3, and fees and
expenses of counsel for the Investors), but including, without limitation, all
registration, listing, and qualifications fees, printers and accounting fees,
the fees and disbursements of counsel for the Company, shall be borne by the
Company.
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
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person"), against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the final prospectus (as
amended or
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<PAGE>
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 or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation under the
Securities Act, the Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). The
Company shall reimburse the Investors, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigation or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) shall not (I) 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 or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(b) hereof; (II) be available to the extent such Claim is based on a failure of
the Investor to deliver or cause to be delivered the prospectus made available
by the Company; or (III) apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Each Investor will indemnify
the Company and its officers, directors and agents against any claims 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 or on behalf of such
Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this Section 6.
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 Investors pursuant to Section
9.
(b) 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 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 reasonable 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. In such event, the Company shall pay for only one
separate legal counsel for
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<PAGE>
the Investors; such legal counsel shall be selected by the Investors holding a
majority in interest of the Registrable Securities included in the Registration
Statement to which the Claim relates. 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 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 (a) 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; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available
to the Investors the benefits of Rule 144 promulgated under the Securities Act
or any other similar rule or regulation of the SEC that may at any time permit
the Investors to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to:
(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 Securities Act and the Exchange act;
and
(c) furnish to each Investor so long as such 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
Securities Act and the Exchange 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 Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of at least 30% of the
Registrable Securities
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(excluding the Additional Warrant Shares) only if: (a) 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, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the Securities act and applicable
state securities laws, and (d) at or before the time the Company received the
written notice contemplated by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein. In the event of any delay in filing or effectiveness of the
Registration Statement as a result of such assignment, the Company shall not be
liable for any damages arising from such delay, or the payments set forth in
Section 2(c) hereof.
10. (A) AMENDMENT OF REGISTRATION RIGHTS. Any provision 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 with the written consent of the Company and Investors who
hold an eighty (80%) percent interest of the Registrable Securities. Any
amendment or waiver effective in accordance with this Section 10 shall be
binding upon each Investor and the Company.
(B) ADDITIONAL WARRANT SHARES. The obligation of the
Company hereunder including the time period set forth herein shall apply, mutis
mutandis, to the Additional Warrant Shares upon issuance of the Additional
Warrants.
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
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,
receipt confirmed, or other means) or sent by certified mail, return receipt
requested, properly addressed and with proper postage pre-paid (i) if to the
Company, DYNAGEN, INC., 99 Eric Street, Cambridge, Massachusetts 02139, with a
copy to John M. Hession, Esq., Testa, Hurwitz & Thibeault, LLP, High Street
Tower, 125 High Street, Boston, Massachusetts 02110; (ii) if to the Initial
Investor, at the address set forth under its name in the Stock Purchase
Agreement, with a coy to Samuel Krieger, Esq., Krieger & Prager, 319 Fifth
Avenue, Third Floor, New York, NY 10016 and (iii) if to any other
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Investor, at such address as such Investor shall have provided in writing to the
Company, or at such other address as each such party furnishes by notice given
in accordance with this Section 11(b), and shall be effective, when personally
delivered, upon receipt and, when so sent by certified mail, four (4) calendar
days after deposit with the United States Postal Service.
(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 governed by and interpreted in
accordance with the laws of the State of New York. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in the
City 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. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto. This Agreement may
be signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement. 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. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(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) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(i) 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.
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<PAGE>
This Agreement, once executed by a party, may be delivered to the other party
hereto by telephone line facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
(j) The Company acknowledges that any failure by the Company
to perform its obligations under Section 3(a), or any delay in such performance
could result in to the Investors and the Company agrees that, in addition to any
other liability of the Company may have by reason of any such failure or delay,
the Company shall be liable for all direct damages caused by any such failure or
delay, unless same is the result of force majeure. Neither party shall be liable
for consequential damages.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
DYNAGEN, INC.
By: /s/ Indu A. Muni
-----------------------
Name: Indu A. Muni
Title: President
ENDEAVOUR CAPITAL FUND S.A.
By: [illegible]
-------------------------
Name:
Title:
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<PAGE>
ANNEX V
COMPANY DISCLOSURE
[TO BE SUPPLIED]
-1-
<PAGE>
<TABLE>
<CAPTION>
Exercise
Number Date of Price Per Expiration
No. Name and Address of Shares Grant Share Date
- --- ---------------- --------- ----- ----- ----
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
87 Ehahlesh Daftaru (NQ) 83,000 5/19/96 $ .50 5/19/00
Able Laboratories 20750
8 Hollywood Court 29050
S. Plainfield, NJ 33200
- ---------------------------------------------------------------------------------------------------------------------
88 Mahendra 83,000 5/19/95 $ .50 5/19/03
Pandya,Ph.D. (QO) 20760
8018 Daytona St., 29060
N.W. 33200
Wassillion, OH 44845
- ---------------------------------------------------------------------------------------------------------------------
88 Francis R. Shottes 50,000 9/1/96 $1.94 9/1/03
(NQ) 3845 shares
18 Weston Street per qtr over 3
Derry, NH 03038 years
- ---------------------------------------------------------------------------------------------------------------------
90 John R. Kelley (NQ) 10,000 9/3/96 $1.94 9/3/03
P.O. Box 3749
Boynton Beach, FL
33424
- ---------------------------------------------------------------------------------------------------------------------
91 Susan M. Barrett (?) 100,000 11/11/96 $1.31 11/11/03
2 Pear Court 25000
Flemington, NH 08832 35000
40000
- ---------------------------------------------------------------------------------------------------------------------
92 Ewapan 50,000 7/15/97 $ .94 7/15/04
Roychowdhury 12500
17500
20000
</TABLE>
-2-
<PAGE>
EXHIBIT 23a
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
DynaGen, Inc. on Form S-3 of our report dated April 14, 1998, appearing in the
Annual Report on Form 10-K of DynaGen, Inc. for the year ended December 31,
1997, as amended and to the reference to us under the heading "Experts" in this
Prospectus, which is part of this Registration Statement.
/s/ Wolf & Company, P.C.
--------------------------------
WOLF & COMPANY, P.C.
Boston, Massachusetts
November 17, 1998
<PAGE>
EXHIBIT 23b
[LETTERHEAD OF GRANT THORNTON LLP]
We have issued our report dated January 24, 1997, accompanying the financial
statements and schedules of Superior Pharmaceutical Company appearing in the
Form 8K/A dated July 11, 1997 of Dynagen, Inc., which is incorporated by
reference in this Registration Statement. We consent to the incorporation by
reference in the Registration Statement of the aforementioned reports, and to
the use of our name as it appears under the caption "Experts".
/s/ Grant Thornton LLP
- - -----------------------
Grant Thornton
Cincinnati, Ohio
November 18, 1998
